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Reporting tax return positions inconsistent with IRS authority – between “a rock and a hard place”

Roger D. Lorence (Partner at Sadis & Goldberg LLP, New York, New York, USA)
Steven M. Etkind (Partner at Sadis & Goldberg LLP, New York, New York, USA)

Journal of Investment Compliance

ISSN: 1528-5812

Article publication date: 20 November 2009

291

Abstract

Purpose

The purpose of this paper is to highlight the quandary that a taxpayer may be in when choosing between disclosing a tax return position that may be contrary to Internal Revenue Service (IRS) authorities and potentially subjecting the taxpayer to substantial penalties if the position is not disclosed.

Design/methodology/approach

The paper describes the technical rules applicable to tax return disclosures and IRS forms and provides several examples relating to hedge funds.

Findings

The tensions between disclosure, possibly triggering an IRS audit, and nondisclosure, possibly resulting in substantial penalties, are not easily resolvable. In addition, financial accounting reporting of uncertain tax positions (FIN 48) must also be considered in weighing the alternatives.

Originality/value

The paper provides timely guidance from experts on tax issues relating to tax return presentation in general, and to tax issues of hedge funds in particular.

Keywords

Citation

Lorence, R.D. and Etkind, S.M. (2009), "Reporting tax return positions inconsistent with IRS authority – between “a rock and a hard place”", Journal of Investment Compliance, Vol. 10 No. 4, pp. 26-30. https://doi.org/10.1108/15285810911007372

Publisher

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Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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