The Increase in Transparency Requirements for Corporate Tax Positions

Ron Singleton, PhD, CPA, and Steve Smith, PhD, CPA

The United States income tax system is based on honesty, self-reporting, and self-assessment. Taxpayers are supposed to submit truthful and accurate returns, and the U.S. government is supposed to efficiently and effectively audit returns for errors and omissions. In a system that is increasingly complex and difficult to administer, however, the taxpayer-government relationship can quickly devolve into a game of hide-and-seek. Although advances in computer technology, information reporting and matching, and electronic filing have increased transparency and efficiency in individual tax compliance, progress on the corporate side has been comparatively slow. IRS corporate audits continue to be dominated by agents hunkering down over a company's accounting records and documents not only looking for errors and omissions, but also unraveling complex transactions to ensure proper reporting.