For entities with a calendar year-end, it’s that time of year – time to calculate the second quarter income tax provision.  Income tax expense for interim periods is based on an estimated annual effective income tax rate multiplied by the year-to-date ordinary pretax book income.  To get your interim provision right the first time, remember the following:

• Ordinary pretax book income does not include significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect.  Such items include, but are not limited to, discontinued operations or the cumulative effect of a change in accounting principle. 
• Certain items are not included in the estimated annual effective tax rate.  Instead, these items are allocated 100% to the quarter in which they occur.  Such items include, but are not limited to, certain releases of a valuation allowance, certain changes in a liability for uncertain tax positions, the impact of a change in tax law and the true-up of the tax provision from the prior year.
• Just like the annual tax provision, the interim tax provision is based on enacted tax law.  As of June 30, 2010, the American Jobs and Closing Tax Loopholes Act of 2010 (a.k.a. the Extenders Bill) has not been signed into law by the President.   As such, it is not appropriate to include in the second quarter provision any benefit for Research Credits generated during 2010.   
• Jurisdictions in which a company is unable to recognize a tax benefit for losses (i.e. a full valuation allowance has been recorded) are excluded from the estimated annual effective income tax rate calculation. 

On January 26, 2010, the Internal Revenue Service (“IRS”) released Announcement 2010-09. The announcement explains the content of a proposed schedule that certain business taxpayers will be required to file with their annual tax returns. The schedule will include disclosures regarding uncertain tax positions for which a tax reserve has been established under FIN 48 or other accounting standard.

According to the announcement, the required disclosures will include the following:

• The Internal Revenue Code sections potentially implicated by the position;
• A description of the taxable year or years to which the position relates;
• A statement that the position involves an item of income, gain, loss, deduction, or credit against tax;
• A statement that the position involves a permanent inclusion or exclusion of any item, the timing of that item, or both;
• A statement whether the position involves a determination of the value of any property or right;
• A statement whether the position involves a computation of basis;
• The entire amount of United States federal income tax that would be due if the position were disallowed in its entirety on audit. This amount is the maximum tax adjustment for the position reflecting all changes to items of income, gain, loss, deduction, or credit if the position is not sustained.

Uncertain tax positions will also include any position for which a taxpayer or related party has not recorded a tax reserve because:
1. the taxpayer expects to litigate the position, or
2. the taxpayer has determined that the Service has a general administrative practice not to examine the position.

The IRS intends that the new schedule will be filed by a business taxpayer with total assets in excess of $10 million if the taxpayer has one or more uncertain tax positions of the type required to be reported on the new schedule. This includes a taxpayer who prepares financial statements, or is included in the financial statements of a related entity that prepares financial statements, if that taxpayer or related entity determines its United States federal income tax reserves under FIN 48, or other accounting standards.

The IRS has invited the public to submit comments on the proposal described in this Announcement by March 29, 2010. The Service intends to mandate that the new schedule be filed for uncertain tax positions filed with returns filed after release of the schedule. There has been no indication as to when the schedule will be released.