Confidence Levels Tax Reporting Positions
Confidence Levels Tax Reporting Positions is perhaps the most difficult part of a tax practitioner’s work.
- Will (at least 90%): While the term is not defined by law, this means a virtually certain position. Be cautious in using this term as it can relay a certain level of confidence.
- Should (at least 70%): While not defined by law, the preponderance and weight of support are favorable. Be cautious in using this term as it can relay a certain level of confidence.
- More Likely than Not (at least >50%): Reasonable belief that the tax treatment of an item at the time the return is filed is more likely than not the proper tax treatment (i.e., there is a greater than 50% chance it will be upheld if challenged by the IRS) based on an analysis of pertinent facts and authorities in the manner described in Regs. Sec. 1.6662-4(d)(3)(ii). [Regs. Sec. 1.6664-4(f)(2)(B)]
- Substantial Authority (at least 40%): An objective standard involving an analysis of the law and application of the law to the relevant facts. Substantial authority exists if the weight of the authority supporting the treatment is substantial in relation to the weight of the authority supporting contrary treatment. [Regs. Sec. 1.6662-4(d)]
- Realistic Possibility of Success (at least 33%): A reasonable and well-informed analysis of the law and the facts by a person knowledgeable in tax law would lead such a person to conclude that the position has approximately a one-in-three (or greater) likelihood of being sustained on its merits. [AICPA SSTS No. 1]
- Reasonable Basis (20%): If a position is based on one or more authorities, it will generally satisfy reasonable basis even though it does not satisfy the substantial authority standard (not merely arguable or not merely a colorable claim). [Regs. Sec.1.6662-3(b)(3); Joint Committee on Taxation Interest and Penalty Study (JCS-3-99)]
- Below Reasonable Basis, including Frivolous (below 20%): A position that is patently improper with no plausible argument in support of the position. [Not defined by statute or regulation]
The analysis is performed utilizing an established for types of authority for Federal Income Tax purposes.
From Our Blog
Cannabis Practice Group
- Cannabis Practice Group
- Frequently Asked Questions [FAQ’s] – Cannabis
- Client Support Portal
- Accounting Services for Cannabis Businesses
- Income Tax Compliance for Cannabis Businesses
- California Cannabis Resources
Industries We Serve
CPA Professional Services
- CPA Professional Services
- Technology Consulting
- Google Cloud – G Suite, Chrome, Android
- Xero Accounting – and Add-On Market Place