USA - Shulman acknowledges IRS has "changed the game" on compliance

Erin Kelechava in Washington, DC
2010/04/13

"While I believe our approach is reasonable, let me be clear – I also understand that it is a "game-changer" with respect to our relationships with and responsibility to our large corporate taxpayers," he said. "We are moving away from what I would describe as a contentious relationship where we spend too much of our time identifying issues, to one where we know the issues from the outset and spend our time engaging on appropriate issues."

Doug Shulman, Commissioner of the US Internal Revenue Service (IRS), spent much of his speech at Tax Executive Institute's mid-year meeting yesterday time reassuring the audience that he appreciated their concerns over new IRS compliance proposals.

Shulman referred to announcement 2010-9, released in January, as a big step towards fostering transparency in the tax system. The announcement describes changes to how corporate taxpayers will be required to report uncertain tax positions. These new reporting requirements are causing serious concern among large corporate taxpayers about the amount of information the IRS will now have about potential tax liabilities.

"While I believe our approach is reasonable, let me be clear – I also understand that it is a "game-changer" with respect to our relationships with and responsibility to our large corporate taxpayers," he said. "We are moving away from what I would describe as a contentious relationship where we spend too much of our time identifying issues, to one where we know the issues from the outset and spend our time engaging on appropriate issues."

The commissioner stressed that in developing the programme, the IRS tried to craft a proposal that provides the Service with the information it needs, without forcing taxpayers to divulge its opinions about the strengths and weaknesses of their uncertain tax positions.

He acknowledged that although "some friction in the system in healthy" , he also believes that the new proposals will allow both parties to assure that time is efficiently spent discussing the law rather than searching for facts, and would allow the examiners to prioritise issues, resulting in a more timely and less fraught resolution process.

The IRS chief also tried to provide some reassurance about litigation that is of serious concern to taxpayers. He said that the Service is maintaining its policy of restraint about tax accrual workpapers. This has been the subject of a recent case in the US Court of Appeals for the First Circuit, US v Textron.

Shulman also addressed concerns about the redundancy of information taxpayers file with the IRS. He announced that the IRS is planning to consider the reporting of uncertain tax positions as adequate disclosure for purposes of penalty provisions in other tax statutes.

In response to a question from the audience as to how the IRS would train its examiners to use the information contained in the new schedule of uncertain positions properly, Shulman was candid.

"This proposal has laid bare the distrust on both sides of the audit table," he said.

For the IRS' part, Shulman noted that "with more information comes more responsibility".

Changes to CAP and increased published guidance

Shulman also announced the expansion of the Compliance Assurance Program (CAP) initiative, which he referred to as "the most successful foray to date into enhancing transparency". The IRS is now trying to make the CAP pilot programme permanent, and is working on developing a pre-CAP process to allow taxpayers an easier path to enrolment in the programme.

The Service is also developing a CAP maintenance programme so that when issues arise between tax seasons, taxpayers that are involved in the program will be able to gain more benefit from the greater certainty that the program affords.

The commissioner said that the use of published guidance will be front and centre in the government's efforts to eliminate uncertainty. "We won't hesitate to go to Congress with issues that are ambiguous and require clarification," he said.