IRS scales back requirement that corporations disclose aggressive use of iffy tax breaks

By Stephen Ohlemacher, AP
Friday, September 24, 2010

IRS scales back rule on disclosing iffy tax breaks

WASHINGTON — The Internal Revenue Service is scaling back a new requirement that large corporations disclose on their tax returns whether they are taking tax breaks that might be unacceptable to the government.

The agency is responding to complaints from companies that some of the disclosures are too burdensome, IRS Commissioner Doug Shulman said Friday. However, he said the new rules will still fulfill his goal of making corporate returns more transparent and IRS examinations more efficient.

“Those core principles, which are what we needed to do our job better and to help shift the relationship with corporate taxpayers, those core principles remain in place,” Shulman said in an interview.

Large corporate tax filings are often complex, with some firms taking tax breaks that fall into a gray area of tax law. Starting this year, the IRS is phasing in a requirement that large corporations flag those “uncertain tax positions” for IRS examiners to improve enforcement.

Corporations must already disclose in financial reports that they have taken such tax positions, but the reports are not usually detailed enough to help IRS examiners. The IRS announced in January that large corporations will have to start providing detailed information about the positions on their tax returns, essentially waving a red flag at auditors when taxpayers take big money deductions.

“On some of our audits we spend 25 percent of our time trying to find those issues,” Shulman said. “We’ve just saved 25 percent of our time.”

After soliciting comments on the new rules from taxpayers, the IRS on Friday said it will drop a requirement that corporations list the maximum amount of taxes they would owe if the tax breaks were not allowed. Shulman also said the IRS will phase in the new requirements over five years.

The new rules go into affect this year for corporations with $100 million or more in assets. Companies with at least $50 million in assets will have to start complying in 2012, and those with at least $10 million in assets will have to start complying in 2014. Smaller corporations are exempt.

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