Aggressive tax positions
originally posted: 11/22/2006 reposted: 3/15/2011
Q: Whenever there is a question of proper procedure in preparing our taxes, my tax adviser always takes the more aggressive position. Should I be concerned about the possible consequences?
A: Well, first we should clarify that an aggressive position is a which is not viewed as inherently correct or incorrect but in this brief column we will not discuss the merits or risks of any specific position.
As a practical matter, if the IRS does not agree with your accounting positions, then many taxpayers find it is less expensive to pay the additional tax than to argue with the auditor. So it makes sense to be aware of the magnitude of effects of these positions and be prepared to pay the tax for the aggressive positions taken on your return in the event that the position is challenged.
Legally a tax advisor may recommend a position that has as high as 2 out of 3 chance of being disallowed in an audit. In other words, tax advisers are allowed to take aggressive positions and often do so without fear of consequences. But the adviser is not likely to lose sleep if your return is audited and assessed additional taxes. The important thing is that you recognize the risks and possible additional costs associated with your tax positions and have a plan (and financial resources) to handle it if happens.
When taking an aggressive tax position, be sure to be aware of the financial impact and be prepared to pay that amount if the IRS challenges the position.
More resources: