May 28, SUBMITTED ELECTRONICALLY

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1 CBIZ MHM, LLC National Tax Office One Overton Park, 3625 Cumberland Blvd., Suite 800 Atlanta, GA Ph: F: Honorable Douglas H. Shulman Commissioner 1111 Constitution Avenue Washington, DC Honorable William J. Wilkins Chief Counsel 1111 Constitution Avenue Washington, DC CC:PA:PLD:PR (Announcement ), Room 5203 SUBMITTED ELECTRONICALLY Dear Commissioner Shulman and Chief Counsel Wilkins, CBIZ MHM, LLC, the 8th largest provider of tax services in the country according to the 2010 rankings released by Accounting Today, hereby respectfully submits these comments to Announcement and the proposed Schedule UTP, a draft of which was released with instructions on April 19, CBIZ MHM represents many clients who are on the lower end of the asset threshold for the requirement to file Schedule UTP, as well as many clients who satisfy the asset threshold but differ on whether they prepare audited financial statements. 1 While we and our clients support IRS efforts to improve efficiency in the administration and enforcement of the tax laws, we believe the concept of the Schedule UTP, as well as the proposed implementation, are flawed in many respects. Although submitted prior to the release of the draft Schedule UTP and corresponding instructions, the comments submitted by Steptoe & Johnson (April 7, 2010) and the Tax Section of the New York Bar Association (March 29, 2010) discuss fully and cogently many issues of concern, and we adopt, 1 References in these Comments to audited financial statements are intended to incorporate all financial statements defined as Audited Financial Statements in the definitional section of the proposed Instructions for Schedule UTP. Similarly, references to FIN 48 are intended to incorporate corresponding provisions of relevant IFRS or countryspecific accounting standards.

2 Page 2 endorse and reiterate those concerns. Although we do not wish to cover the same ground in our letter, we do wish to specifically mention our grave concerns in the following areas addressed in those submissions: 1. Confirmation that the Schedule will incorporate relevant changes to applicable standards under FIN 48; 2. Why the draft Schedule UTP has a box for Administrative Practice but not for litigation strategy; 3. Elimination of the requirement that the taxpayer state the maximum amount of potential federal income tax liability associated with the tax year for which the uncertain tax position ( UTP ), was taken; 4. Confirmation that UTPs that are immaterial for GAAP purposes are not required to be disclosed; 5. Provision of guidance on the application of the related party rules; 6. Confirmation that the $10 million threshold will be determined under rules comparable to those used for Schedule M; and 7. That the proposed Schedule UTP provides the IRS with a disproportionate advantage in what is fundamentally an adversarial process. Specific Concerns of CBIZ MHM a. Fairness Under the guise of relieving taxpayers of having to incur any more costs or compliance burdens, the IRS has made the Schedule UTP applicable to a specific group of taxpayers that are being treated differently than other taxpayers without any fundamental justification. Why should a corporation with $10 million in assets that has audited financial statements prepared be required to reveal specific uncertain tax positions to the IRS, when a corporation with $10 million in assets that does not have audited financial statements prepared has no similar obligation? Why should a corporation with $10 million in assets be treated differently than an LLC with $25 million in assets, when both use audited financial statements? There may be sound reasons to treat these entities differently for financial reporting purposes, because FIN 48 seeks to standardize the way that deferred tax assets and liabilities are presented on financial statements. Of course FIN 48 does not apply to companies who do not use audited financial statements, because FIN 48 is part of GAAP. No similar logic exists for the Schedule UTP. And one s sense of unfairness and lack of parity is hardly assuaged by the fact that the IRS has reserved the right to apply the Schedule UTP to pass through entities in the future. 2 2 See comments of Ron Schultz, Senior Advisor to the Deputy IRS Commissioner for Services and Enforcement, reported in CCH Federal Tax Day (April 29, 2010).

3 Page 3 Although there is no logical distinction between the way entities required to file the Schedule UTP (the filing group ) and those not required to file the Schedule UTP (the exempt group ) should be treated for tax purposes, the filing group: a. Will have to disclose uncertain tax positions that carry a greater degree of certainty that the exempt group; b. Will have to reveal the worst case tax scenario assuming the IRS disagrees with the reporting of the position, even if the position is one that would have been subject to Form 8275, while the exempt group is never asked to reveal this information; c. Will incur the added compliance expense; d. Will face the higher costs associated with defending positions in examination, appeals and in court; e. Will run the risk of waiving attorney-client or work product privileges; f. Will have to reveal tax positions that are not believed to be uncertain based upon IRS administrative practice; and g. Will have to reveal its self assessment of litigation risk for positions that it intends to litigate and believes it will win. The IRS duty regarding the equal treatment of similarly situated taxpayers was summarized eloquently in IBM v. United States, 343 F.2d 914 (Cl. Ct. 1965), cert. denied 382 U.S. 1028: Implicit, too, in the Congressional award of discretion to the Service, through Section 7805(b), is the power as well as the obligation to consider the totality of the circumstances surrounding the handing down of a ruling--including the comparative or differential effect on the other taxpayers in the same class. The Commissioner cannot tax one and not tax another without some rational basis for the difference. United States v. Kaiser, 363 U. S. 299, 308 (1960) (Frankfurter, J., concurring). This factor has come to be recognized as central to the administration of the section. See Automobile Club of Michigan v. Commissioner, 353 U. S. 180, (1957); Exchange Parts Co. v. United States, 150 Ct. Cl. 538, 543, 279 F. 2d 251, 254 (1960); Connecticut Ry. & Lighting Co. v. United States, 135 Ct. Cl. 650, , 142 F. Supp. 907, (1956); Wolinsky v. United States, 271 F. 2d 865, 868 (C. A. 2, 1959); Weller v. Commissioner, 270 F. 2d 294, 299 (C. A. 3, 1959), cert. denied, 364 U. S. 908 (1960); Goodstein v. Commissioner, 267 F. 2d 127, 132 (C. A. 1, 1959); City Loan & Savings Co. v. United States, 177 F. Supp. 843, 851 (N. D. Ohio, 1959), aff d 287 F. 2d 612, 616 (C. A. 6, 1961). Equality of treatment is so dominant in our understanding of justice that discretion, where it is allowed a role, must pay the strictest heed.

4 Page 4 Accordingly, we believe that instead of rushing to implement a reporting system such as that envisioned by Schedule UTP, the IRS should take more time analyze the impact of such a system on affected taxpayers, ensuring that taxpayers are treated equally and fairly, that the economic burdens imposed by such a system is evaluated disinterestedly in light of the practical implications, and that the IRS is not overstepping its regulatory authority by imposing taxpayer reporting obligations expressly disapproved by Congress. b. The Schedule is Duplicative Under IRC 6694, a return preparer cannot sign a tax return unless each position on the return has substantial authority (generally thought of as a 40% likelihood of success on the merits), or the position has a reasonable basis (generally thought of as a 20% likelihood of success on the merits) and the position has been disclosed. Disclosure is normally made using Form 8275 or 8275-R, as applicable. The IRS has specifically asked for comments on whether Schedule UTP duplicates those forms, and we believe that it does. When 6694 was originally changed by the Small Business and Work Opportunity Tax Act of 2007, a position had to be disclosed unless it met the more likely than not standard, the same standard applied to determine initially whether a taxpayer can include a deferred tax asset under FIN 48. The standard was lowered to substantial authority by the Emergency Economic Stabilization Act of 2008, because it conforms to the taxpayer standard. 3 The reference to the taxpayer standard is under IRC 6662, where a taxpayer is relieved from the substantial understatement penalty if he can show that the position had substantial authority. Prior to the change, preparers could be in potential conflict with their clients if the preparer could not sign a return because a position did not satisfy the more likely than not standard, but a taxpayer would not be penalized because the position had substantial authority. As a result, Congress has already implemented a system requires a taxpayer to alert the IRS to the fact that the taxpayer has taken a position that, in the opinion of the taxpayer or its advisors, has less than a 40% likelihood of success on the merits if challenged. Congress had previously imposed the same constraint, only at a level that corresponded to the FIN 48 analysis, but adjusted the level of assurance down 10% in order to make the preparer s standard correspond to the client s standard. With the implementation of the proposed Schedule UTP, the IRS is, in effect, usurping the role of Congress in determining at what level a taxpayer should inform the IRS of positions that involve unresolved applications of the tax law to the facts. The IRS seems to be ignoring the fact that Congress has settled on the level at which taxpayers should alert the IRS to uncertain positions, and that level is substantial authority. By implementing Schedule UTP, the IRS is circumventing Congressional intent. This appears to be overreaching. The IRS not only wants the assurance level increased to the previous level of more likely than not, but it wants the taxpayer to calculate the worst case scenario at the same time. 3 Joint Committee Report, H.R. 1424, Section 506 (Including the Emergency Economic Stabilization, Energy Improvement and Extension, and Tax Extenders and AMT Relief Acts of 2008).

5 Page 5 This information is either duplicative (to the extent the uncertain position falls below the substantial authority standard), or is an unwarranted usurpation of the rights of Congress to establish the internal revenue laws. The Treasury Secretary s rights to pass regulations and require taxpayers to file forms to report the correct amount of taxes should not take precedence over express Congressional mandates regarding specific taxpayer reporting obligations. c. Use of the Information Although Chief Counsel Wilkins reiterated on April 23 that the IRS does not plan to use the information it gets from taxpayers on UTPs as a road map for adjustments in the exam process, 4 the IRS has not addressed the practical implications of the impact of such a form in the audit process, especially for taxpayers who are at the -lower end of the asset threshold for filing. Taxpayers with $10 million in assets are not necessarily wealthy or highly profitable, and any increases in the cost of compliance or audit defense will be felt acutely by this group. When the IRS introduced Form 8886 to report participation in reportable transactions, the reporting requirement included (and still includes) participation in transactions that are the same or substantially similar to identified reportable transactions. Recognizing the ambiguity inherent in such language, the IRS attempted to ameliorate the impact of the potential confusion by providing for a protective disclosure in Reg (f)(2): (2) Protective disclosures. If a taxpayer is uncertain whether a transaction must be disclosed under this section, the taxpayer may disclose the transaction in accordance with the requirements of this section and comply with all the provisions of this section, and indicate on the disclosure statement that the disclosure statement is being filed on a protective basis. The IRS will not treat disclosure statements filed on a protective basis any differently than other disclosure statements filed under this section. For a protective disclosure to be effective, the taxpayer must comply with these disclosure regulations by providing to the IRS all information requested by the IRS under this section. Many of our clients filed protective disclosures with respect to investments that were fully legitimate under the tax laws, simply because the term substantially similar is so ambiguous and the penalties for failure to file the Form 8886 are so severe. It was our experience that every protective disclosure resulted in an audit of the transaction disclosed. Leaving aside whether such a practice encourages future non-compliance, the audit of the transaction was not the most disturbing aspect of the procedural quagmire. Instead, it was the uniform disallowance of any tax benefits and assertion of penalties against every taxpayer before the agent knew or understood the transaction. Even though taxpayers were careful to explain why the protective disclosure was filed, and why the taxpayers believed their transactions were not substantially similar to the reportable transactions, none of that information was used in any way once the form had made its way down to the rank-and-file IRS examination agent. 4 BNA Daily Tax Report (April 26, 2010).

6 Page 6 The next step was the attempt to persuade the agent (a) the reason a protective disclosure was filed, and (b) why the taxpayer s transaction should not be treated in the same way as the reportable transaction. We were consistently unsuccessful in either endeavor at the agent level. In Appeals, we thought the atmosphere might be different. We found the same attitude, however. No one in the IRS examination process was willing to (a) understand the reportable transaction well enough to listen to reasons why a transaction reported as substantially similar (albeit on a protective disclosure ) should be treated differently, or (b) run the risk of letting a taxpayer off the hook if it turned out he was wrong about the transactions being different. As a result, virtually every taxpayer, despite engaging in transactions that were fully sustainable under the tax laws, had to settle with the IRS and pay taxes and interest, because the cost of litigation far outweighed the cost of settlement. We fear that the Schedule UTP will result in the same type of mindset when it reaches the agent level, especially in examinations of the smaller companies. It is often much easier for an agent to disallow the taxpayer s treatment of an item than to understand the complexities and make an unbiased determination based the application of the law to the taxpayer s facts. Too many times we have represented clients before the IRS and had to deal with the mindset that if you are right, you can have your day in court. That is simply not an option for many taxpayers, due to the expense of prosecuting a case through IRS Appeals and then into court and potentially to the appellate court. And those who represent taxpayers in IRS controversy work will all have similar anecdotes. We strongly recommend that the IRS suspend implementation of the Schedule UTP until it has conducted sufficient research into this issue. The cost of Schedule UTP will not be limited to the compliance aspect of preparing and filing the form. The much greater expense is likely to come in the form of costs of representation in examination and appeals, and possibly court. The IRS has the advantage of putting the burden of proof on the taxpayer in any legal proceeding, a concept that makes sense when thought of in terms of the taxpayer s being in control of the evidence. It is often used in the examination process in a much different way, however. Many agents simply take the position that they have not been satisfied by the evidence and argument presented by the taxpayer, and therefore the taxpayer has not carried his burden of proof. And once an agent believes a taxpayer has admitted that the tax benefit is not sustainable as in the case of a Form 8886 disclosure, protective or otherwise proving one s case becomes a virtually impossible hurdle to overcome. The proposed Schedule UTP has all of the hallmarks of creating just such a frame of mind. An agent is very likely to equate uncertain with inappropriate or unsustainable, and at that point the taxpayer is liable for extensive costs of representation. d. Codification of Economic Substance With the passage of the Health Care and Education Reconciliation Act of 2010, Congress has codified the economic substance doctrine by adding new Internal Revenue Code section 7701(o). The new section applies to any transaction to which the economic substance doctrine is relevant.

7 Page 7 The scope of the term relevant is very broad. As summarized by the court in the case In re: Newton, 718 F2d 1015 (11 th Cir. 1983), a summons enforcement case in which the taxpayer was claiming that information sought by the government was not relevant: In United States v. Wyatt, 637 F. 2d 293 (5th Cir. 1981), the former Fifth Circuit articulated the test for relevancy under [United States v. Powell, 379 U. S. 48 (1964)]. The test is whether the summons seeks information which might throw light upon the correctness of the taxpayer s return' and, more narrowly, whether there is an indication of a realistic expectation rather than an idle hope that something might be discovered.' Id. at (citation omitted). If the economic substance doctrine is relevant to a transaction, then the taxpayer must show that (a) the transaction changed in a meaningful way the taxpayer s economic position, and (b) the taxpayer had a substantial purpose apart from federal income tax benefits for entering into the transaction. Once again, the ambiguity of the new law is patent; the terms relevant, meaningful, and substantial are all intentionally vague terms that require subjective analysis. The implications of this new law on the determination of a taxpayer s assurance level for financial reporting purposes, and hence for Schedule UTP purposes, remains unclear. Substantial penalties apply to undisclosed transactions to which section 7701(o) may apply, which creates the same level of confusion as the IRS created with the same or substantially similar language applicable to reporting on Form 8886, discussed above. There seem to be more questions surrounding the application of section 7701(o) than answers. For example, can shareholders who exchange stock in an existing corporation for stock in an acquiring corporation in a transaction that qualifies as a tax-free reorganization under section 368(a) meet the new criteria under the economic substance rules? Is the doctrine relevant? Did they meaningfully change their economic position if the value of the stock they received was equal to the value of the stock they surrendered? Did they have a substantial purpose for structuring the transaction as a reorganization other than the tax-free nature of the consideration they received in exchange for the surrender of their existing shares? Although it seems far fetched to characterize a transaction whose tax benefits are specifically approved by provisions of the Internal Revenue Code as potentially taxable under the new economic substance rules, it serves to emphasize the ambiguity and subjectivity inherent in the new rules. CBIZ MHM requests and suggests that implementation of Schedule UTP be postponed until there is greater clarity regarding the application of new section 7701(o). Conclusion We appreciate the ability to provide comments to Announcement and the proposed new Schedule UTP, and we fully support the efforts of the IRS to continually improve efficiency in the administration of the tax laws. In summary, (a) it should not be the taxpayer s job to alert the IRS to any position that is less than highly certain of a positive result, (b) similarly situated taxpayers are treated very differently with respect to both exposure and expense, (c) there is much greater potential

8 Page 8 expense involved than the IRS seems to recognize, (d) the effect of such expense can be especially devastating to taxpayer s at the lower end of the qualifying asset range, (e) use of the information reported on the Schedule UTP by the IRS is far from certain, (f) recent codification of the economic substance doctrine has created greater ambiguity in whether tax positions should be treated as uncertain, and (g) the IRS has inappropriately expanded its authority in an area where Congress has been very specific regarding taxpayers disclosures of uncertain tax positions. For the foregoing reasons, CBIZ MHM implores the IRS to refrain from implementing the Schedule UTP in its current proposed format. Sincerely, CBIZ MHM, LLC By: By: Stephen Henley, CPA Senior Managing Director and National Tax Practice Leader shenley@cbiz.com William M. Smith, Esq. Managing Director, CBIZ MHM National Tax Office billsmith@cbiz.com