Treasury, IRS Streamline Reporting of Significant Book-Tax Differences

by Leroy Baker, Tax-News.com, New York

12 July 2004

The Treasury Department and the Internal Revenue Service last week issued a revenue procedure that streamlines the disclosure by taxpayers of transactions with a significant book-tax difference.

"Large book-tax differences frequently indicate the existence of an abusive transaction. The new Schedule M-3 will enable the IRS to identify quickly those differences that warrant additional scrutiny," commented Acting Assistant Secretary for Tax Policy Greg Jenner.

According to the US tax authorities, some taxpayers engaging in abusive transactions have benefited from the different rules for financial, or book, accounting and tax accounting by claiming tax benefits that have no corresponding financial cost.

The new Schedule M-3 requires all C corporations under the jurisdiction of the IRS Large and Mid-Size Business Division (LMSB) to disclose detailed information about book-tax differences as part of their tax returns for 2004 and later taxable years. These corporations will then be treated as satisfying the disclosure requirements under the return disclosure regulations by completing the new Schedule M-3.

In addition, taxpayers not required to file the new schedule may satisfy their disclosure obligations by using the standardized reporting format contained in the new Schedule M-3 or by following the return disclosure regulations.

Mr Jenner added: "By allowing all taxpayers to use the new Schedule M-3, the revenue procedure will simplify reporting and reduce taxpayer burden."

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