Updates and guidance on key IRS practice developments.

• Author: Heroux, Mark

Procedure & Adminstration.

Adequate disclosure and the IRS's strategy of more information reporting

Many practitioners will recall from their formal tax training that when it comes to adequate disclosure of an item on a tax return, generally, a taxpayer must provide sufficient information so that the IRS can make a determination of an item based on the facts, issue, taxpayer's positions, and the dollar amount associated with it. The IRS provides much guidance in this area, including Rev. Proc. 2021-52, the current annual statement on adequate disclosure for purposes of Sees. 6662(d) and 6694(a). Specific instructions in regulations and forms add to the adequate-disclosure rules. As a result, there is significant risk when preparing a tax return and determining whether all items are adequately disclosed.

The IRS has taken steps to increase the information reporting burden on taxpayers. Notice 2007-83, making an identified abusive trust arrangement a listed transaction, requires taxpayers to disclose substantial information regarding these transactions. Notice 2016-66 requires taxpayers involved in certain microcaptive insurance arrangements to disclose substantial information regarding these "transactions of interest." Recently, the IRS issued new instructions to Schedules UTP, Uncertain Tax Position Statement, K-2, Partners' Distributive Share Items--International [or Shareholders' Pro Rata Share Items--International]; and K-3, Partner's [or Shareholder's] Share of Income, Deductions, Credits, etc.--International, that require substantially more information than has been acceptable in the past (Schedule UTP) and substantially more information than may be available to the taxpayer (Schedules K-2 and K-3). And Field Attorney Advice (FAA) 20214101F requires substantially more information to support a research credit refund claim than has been acceptable in the past.

Other government agencies are increasing the reporting pressure. The FinCEN Corporate Transparency Act proposed regulations (86 Fed. Reg. 69,920 (Dec. 8, 2021)) are evidence of such pressure. Tax practitioners and their organizations, including the AICPA, objected to these reporting requirements to no avail (see AICPA comment letter dated May 5, 2021).

Recently, two courts have spoken, holding that the IRS's information reporting efforts violate the Administrative Procedure Act (APA). In Mann Construction, Inc., No. 21-1500 (6th Cir. 3/3/22), the Sixth Circuit, reversing a district court...