Winter advocacy spade work blooms in Spring issue: TEI holds Washington liaison meetings; urges corporate employer exception for tax preparer ID rules; files amicus letter on retroactive state penalty; comments on Canadian income tax legislation.

• Position: Tax Executives Institute

What a winter! Record snow and ice storms across the far and middle west of the United States, up into Canada, across the East Coast, and throughout Europe disrupted travel, school, and work schedules all season long. It did not, however, slow TEI's advocacy. After reviewing the Institute's technical output in the first quarter of the year, TEI President Paul O'Connor congratulated TEI's technical committees for keeping up the steady flow of submissions to and meetings with government officials despite ever-increasing workloads and resource restrictions.

"The credo, "Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds,' is attributed to the U.S. Postal Service," Mr. O'Connor observed, "and is inscribed on the James Farley Post Office Building in New York City." Coined by the building's architects, the phrase is derived from a much earlier encomium delivered by the Greek historian Herodotus about Persian mail carriers. Regardless of origin or translation, he said, the statement applies to TEI's technical committees and chairs. "Because of the chairs' and committees' hard work and dedication, nothing prevents the Institute from being in the forefront of effective advocacy to government officials," he added.

Washington Liaison Meetings

Led by Mr. O'Connor, a delegation of Executive Committee members and committee chairs met on March 1-2 with the Commissioner of Internal Revenue and other senior IRS officials, with representatives from the Large Business & International (LB&I) Division of the Internal Revenue Service, and with the Assistant Secretary of the Treasury for Tax Policy and others from the U.S. Treasury Department's Office of Tax Policy.

For the second consecutive year, the required disclosures for, and the IRS's use of the information on, Schedule UTP (Statement of Uncertain Tax Position) dominated the discussions with the Commissioner of Internal Revenue and at LB&I. The agendas focused on determining whether the IRS would issue additional guidance for taxpayers beyond the instructions to the form or Notice, the form of the guidance, training for agents in interpreting the disclosures, issue identification and the effect on audits, and whether and how other disclosure forms, such as Schedule M-3, might be streamlined or eliminated.

IRS Commissioner Douglas H. Shulman welcomed the discussion, inviting taxpayer concerns about Schedule UTP. As the IRS processes Schedules UTP, he said, the agency will likely select issues that have not arisen with much frequency in the past. As important, the form will provide visibility into medium-sized companies--an area where the IRS has not focused its examination resources in the past. Once issues have been identified as ripe for examination, taxpayers will need to have conversations with their audit teams.

During a separate meeting, LB&I Commissioner Heather Maloy expanded on Mr. Shulman's remarks, noting that the IRS is uncertain about the type and quality of information that will be reported on Schedules UTP, so it is unable to respond to specific questions about potential uses of the disclosures. Individual examination teams, she continued, will make risk assessments about the disclosures based on the facts of each case. IRS agents, she explained, have received and will continue receiving training about accounting for income taxes, including accounting for uncertain tax positions, so that they can evaluate taxpayer disclosures. She added that the IRS understands that taxpayers have different philosophies about whether or when to establish tax reserves so a UTP disclosure does not by itself indicate that a tax adjustment is warranted. Finally, while the IRS has not developed a standardized information document request to follow-up on the disclosures, examination teams will be expected to take the disclosures into account as they tailor their requests. Mr. O'Connor said that Ms. Maloy's observation about differing philosophies is critical since there are many shades of gray in the tax law and taxpayer judgments are reflected in their reserve policies.

Ms. Maloy added that the IRS is at the beginning of a multi-year evaluation of Schedule UTP. In addition to being a tool for selection of taxpayers for audits and for identification of issues, the schedule will assist the IRS to identify issues on which guidance is necessary. She added that the IRS to develop a frequently asked questions (FAQ) webpage to clarify the schedule's instructions and to provide related guidance. (The FAQs were released on March 23.)

Other IRS Issues

Other examination-related initiatives discussed during the meetings included the reorganization of the Large and Mid-Sized Business division into LB&I, the Quality Examination Process (QEP), and the Compliance Assurance Process (CAP) program. Ms. Maloy reported that the reorganization and the QEP program are both intended to assist the IRS in applying its resources as efficiently and effectively as possible to reduce noncompliance. Michael Danilack, LB&I Deputy Commissioner (International), explained that the reorganization would prompt few process changes, especially for large cases where international agents and managers are routinely deployed. The reorganization was driven, he continued, by program priorities and will allow the agency to apply its...