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Comments on Rev. Proc. 89-11: disclosure of return positions.

Comments on Rev. Proc. 89-11: disclosure of Return Positions

November 21, 1989

This letter is in response to your recent request for Tax Executives Institute's comments on the impending revision of Rev. Proc 89-11, 1989-6 I.R.B. 32 (Feb. 6, 1989). That revenue procedure, which is updated annually, and identifies the circumstances under which the disclosure on a taxpayer's return of an item or a position taken will be deemed "adequate" for purposes of section 6661 or the Internal Revenue Code.

The Institute continues to believe that items properly reported on government-prescribed forms or schedules should be deemed to be adquately disclosed for purposes of section 6661(b)(2)(B)(ii). (If the current forms do not render sufficient information, they should be revised.) In the absence of such a rule, however, we believe that certain modifications to Rev. Proc. 89-11 are warranted.

In Rev. Proc. 89-11, the IRS deleted the references to the Form 5471 and Form 5471, Schedule M, which had been contained in the 1988 version of the section 6661 disclosure procedure. See Rev. Proc. 89-11, [subsection] 2.04 and 2.05; Rev. Proc. 88-37, 1988-2 C.B. 560, [section] 4(e)(2). The deletion of the Schedule M may well have been inadvertent, since the Section 482 White Paper (which was issued within a few months of the issuance of Rev. Proc. 89-11) suggests that the section 6661 penalty may properly be avoided by reporting intercompany transactions on Schedules G and M of Form 5471. See A Study of intercompany Pricing at 17-18 n.49 (Discussion Draft Oct. 18, 1988). We recommend that the u990 revenue procedure restore the references to Form 5471 and Schedue M.

We also suggest that items listed on the Form 6765 (Credit for Increasing Research Activities) be treated as adequately disclosed for purposes of section 6661. The R&D credit form is similar to the Form 3468 (Computation of Investment Credit), which consititutes adequate disclosure under section 4(d)(5) of Rev. Proc. 89-11. We are aware of no policy justification for excluding Form 6765 from comparable treatment.

Tax Executives Institute appreciates this opportunity to present our views on Rev. Proc. 89-11. If you have any questions, please do not hesitate to contact [William M. Burk] at (201) 894-2641, or Timothy J. McCormally, the Institute's Tax Counsel, at (202) 638-5601.
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Publication:Tax Executive
Date:Jan 1, 1990
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