LB&I Initiative to Expedite Resolution of Uncertain Tax Positions Prior to Taxpayer Adoption of FIN 48
FAQ 1. Why is the initiative “intended to apply primarily” to taxpayers issuing year-end statements prior to March 31, 2007?
The purpose of LB&I’s FIN 48 initiative is to help taxpayers resolve any uncertain tax positions prior to the required date of adoption. Companies using US GAAP must compute an aggregate adjustment to the accrued tax asset or liability based on the new rules prescribed in FIN 48. That net aggregate amount is to be recorded in opening equity (retained earnings, for corporations) on the first date of their accounting year beginning after December 15, 2006. The Service recognizes that there are a myriad of reasons some taxpayers may want to resolve issues before booking that net aggregate adjustment.
The March 31, 2007 date was selected because it gives an opportunity for expedited resolution of uncertain tax positions to all taxpayers whose required adoption date is no later than April 1, 2007. We believe that our normal procedures for issue resolution will serve the needs of taxpayers whose required date of adoption is beyond that date.
FAQ 2. How long will the process take – both to get accepted and to work the issue?
All requests for expedited service will be accepted as quickly as possible and then worked as quickly as possible. In order to meet the taxpayer’s timeframe, the taxpayer, along with the outside accounting firm will have to make clear to the team manager the expected date of resolution and the type of closing document that is contemplated. The taxpayer will have to be completely transparent, make all information and documentation immediately available and have decision makers available. The total time depends on the facts and circumstances. The team manager will assess his/her resources and determine if the taxpayer’s timeframe can be met.
FAQ 3. What does LB&I expect by the use of the term “total transparency”?
Taxpayers must provide all relevant facts, law and other considerations related to the issue/transaction as stated in the original release of this initiative. This includes, but is not limited to opinion letters of attorneys and accountants, documents, and analyses. The taxpayer must agree to waive any privilege that may otherwise apply. It is anticipated that agents will not have to issue Information Document Requests. The only way to speed up the Service’s usual processes is to eliminate the discovery time. There are reasons that a taxpayer thinks a position taken in tax return is an uncertain position. In order to expedite the examination and resolution of such issues, it is absolutely necessary that the taxpayer openly explain all the reasons for the uncertainty in the position without hesitation and at the inception of the effort.
FAQ 4. A recent article stated that “. . . taxpayers may receive a resolution to uncertain tax positions in as few as three business days”. Is that accurate?
No. That statement appears to be a misreading of the description of the initiative. In the Section of the description document that deals with Procedures, item 8 indicates that the Service will attempt to conclude with finality within 3 days whether a request for the expedited resolution of an issue will be accepted.
FAQ 5. What is the likelihood the request for expedited service will be accepted?
We plan to accept as many requests as possible that meet the guidelines. An important consideration will be whether, given the nature of the issue and the facts and circumstances, there is a practical possibility that examination and resolution of the issue can be completed within the time available.
FAQ 6. Why would a request be rejected?
Please see the guidelines for eligible issues/taxpayers. Beyond that, requests with unrealistic deadlines based upon the facts and circumstances may be rejected.
FAQ 7. Are LB&I teams aware of the expectation to work these requests and get them done quickly?
Yes. However, if the filed tax year is not currently under examination, the team may determine, as a result of their risk assessment, that other issues warrant examination. The "uncertain tax positions" will be worked first with the goal of meeting the agreed timeframe to close the expedited issue and the other issues would be concluded through a regular process.
FAQ 8. Are Form 1120F filers who use US GAAP eligible for the expedited processes?
Yes. All LB&I taxpayers using US GAAP may request expedited resolution of uncertain tax positions.
FAQ 9. Can the taxpayer remain anonymous?
No. However, a representative of the taxpayer may make the initial contact on a no-names basis to explain the nature of the issue and the targeted timeframe for resolution.
FAQ 10. Is there a user fee?
There is no user fee for this process if the return has been filed. However, if the return has not been filed the taxpayer would request a Pre-Filing Agreement, which does require a user fee.
FAQ 11. Will the fee be waived for taxpayers seeking a PFA but who have not yet requested it?
FAQ 11.1 A Pre-Filing Agreement allows you to get an agreement on methodology for up to four future years. May a taxpayer use the FIN 48 initiative to expedite the process?
Yes. See Rev. Proc. 2005-12
FAQ 12. Will a request for a determination on penalties be considered?
Certain penalties can be included in the expedited process. A late filing penalty, if the taxpayer is asserting reasonable cause, is an example of a penalty that could be considered under the expedited initiative.
Promoter penalties are not eligible for consideration under the FIN 48 expedited initiative.
FAQ 13. Can Form 990 filers participate?
The expedited process is an LB&I initiative. However, if a taxpayer under TEGE’s jurisdiction makes the initial contact with LB&I/PFTG as required in the description of the initiative, the request will be forwarded to TEGE for consideration by TEGE.
FAQ 14. Can SBSE taxpayers participate?
The expedited process is an LB&I initiative. However, if a taxpayer under SBSE’s jurisdiction makes the initial contact with LB&I/PFTG as required in the description of the initiative, the request will be forwarded to SBSE for consideration by SBSE.
FAQ 15. What will be the IRS response to the FIN 48 requirements?
All requests for expedited service will be accepted and worked as quickly as possible. The deadline for seeking expedited resolution is 45 days prior to the financial accounting year-end date. For example, the deadline for requesting resolutions for taxpayers with a calendar year end is November 15.
A timeline for working the issues must be jointly worked between the IRS and the taxpayer. Taxpayers must provide all relevant facts, law and other documentation related to the issue/transaction. This includes but is not limited to opinion letters of attorneys and accountants, documents and analyses. The taxpayer must agree to waive any privilege that may otherwise apply. It is anticipated that agents will not have to issue IDR’s. In order to expedite the examination and resolution of issues, it is absolutely necessary that the taxpayer openly explain all the reasons for the uncertainty in the position at the inception of the effort.
Where the uncertain tax position is contained in a filed return that is under examination or where the position is in a filed return not yet under examination, the processes available for resolving issues in filed but not examined returns will apply, such as DO-236, Industry Issue Resolution, Fast Track, and Accelerated Issue Resolution (AIR). For unfilled returns where the taxpayer is not under examination, the taxpayer should follow normal PFA procedures. There will be no fee for filed returns, however if the return has not been filed, the taxpayer would have to pay the PFA user fee.
FAQ 16. Will the Service be monitoring resulting financial data released to the public?
The Service routinely monitors public information as is relates to taxpayers under examination. All publicly disclosed information will be used as deemed appropriate.
FAQ 17. What will the IRS do when it observes a large reserve released after an audit cycle is completed and the statute is expiring within 1 year?
- FIN 48 will not change the IRS’s position on determining the need to re-open an examination on a taxpayer. The current criteria used to determine whether or not to re-open a return will be applied. In cases in which there is a statute that will expire within 1 year, the same criteria will be applied, carefully considering the facts and circumstances of the case. If determined to be appropriate, the IRS will take the necessary steps to protect the Government’s interest.
FAQ 18. Does the IRS envision more difficulty getting statutes extended due to FIN 48?
- Examinations of LB&I taxpayers have become increasing more current. This is expected to continue to improve as well as the fact that there are several initiatives to resolve issues/positions real time, or before the return has even been filed. LB&I continues to explore avenues to provide taxpayers with tax certainty, and reduce the burden of both the taxpayers and the IRS. In accordance with current policy, the IRS will determine the need for the statute extension and take the necessary steps as appropriate.