March 23, 2011
MEMORANDUM FOR LB&I EMPLOYEES
FROM: Heather C. Maloy
Commissioner, Large Business & International Division
SUBJECT: Uncertain Tax Positions - Modified Policy of Restraint
On September 24, 2010, the IRS issued the final Schedule UTP and instructions. The IRS also simultaneously released Announcement 2010-76, which modified the existing policy of restraint in conjunction with the implementation of Schedule UTP.
Under the modified policy of restraint, if a document is otherwise privileged under the attorney-client privilege, the Code section 7525 tax advice privilege, or the work product doctrine and the document was provided to an independent auditor as part of an audit of the taxpayer's financial statements, the IRS will not assert during an examination that privilege has been waived by such disclosure. The modified policy of restraint applies to all examinations, notwithstanding whether a Schedule UTP has been, will be, or is required to be, filed.
Today the IRS is issuing FAQs to address some questions that arose following the release of the final Schedule UTP. One of these questions is:
Question: What is the effective date of the changes to the policy of restraint announced in Announcement 2010-76?
Answer: The changes announced in Announcement 2010-76 apply to any request for documents outstanding on or made after September 24, 2010, in any open examination.
Accordingly, LB&I examiners cannot request, in any open examination, documents that are privileged under the attorney-client privilege, the tax advice privilege, or the work product doctrine, notwithstanding whether these documents have been provided to an independent auditor as part of a financial statement audit unless the privilege has been otherwise waived. Any outstanding requests for such documents should be withdrawn.
As a reminder, the modified policy of restraint also changed the previously-existing policy of restraint in the following important way:
Taxpayers may redact the following information from any copies of tax reconciliation workpapers they are asked to produce during an examination:
- Working drafts, revisions, or comments concerning the concise description of tax positions reported on Schedule UTP.
- The amount of any reserve related to a tax position reported on Schedule UTP.
- Computations determining the ranking of tax positions to be reported on Schedule UTP or the designation of a tax position as a Major Tax Position.
The FAQs and information about UTP can be accessed from Uncertain Tax Positions - Schedule UTP. Over the coming months, we may be issuing additional guidance to address other questions that have been raised with respect to the Schedule UTP.