Internal Revenue Service examiners are accessing publicly available information on risky tax positions, while companies are taking note of IRS interest in their tax information and are getting more forthright as a result.

An emerging academic study, titled IRS Attention,by professors at Ohio State University and the University of Washington suggests the IRS is paying close attention to financial statement disclosures about corporate tax positions and how that squares with private information that is available to the IRS. The study examines download patterns at the IRS and concludes IRS agents, not computer algorithms, are pulling information from the EDGAR database of required public filings based on some specific areas of interest.

“Despite the IRS having a large amount of private tax information, we find evidence that the IRS does pay attention to public financial disclosures in that their acquisition of a given firm’s 10-K is associated with characteristics of tax avoidance,” the authors wrote in their conclusion. “In summary, we find that the IRS is more likely to examine the public financial disclosures of firms that avoid taxes.”

The study shows IRS interest in 10-K filings increased significantly in 2007 and 2008, roughly the same time that companies began reporting in their financial statements where they had some uncertainty in their tax positions, as required in a controversial accounting rule remembered as FASB Interpretation No. 48, adopted in 2006. The IRS soon followed the accounting rule with Schedule UTP required for corporate tax filers beginning in 2010. Schedule UTP requires companies to provide concise explanations in their tax return about where they were relying on tax positions that might not hold up to scrutiny or dispute.

The authors say their study of IRS attention to publicly available information suggests corporate taxpayers are taking note of where the IRS shows greater attention to their tax information. “We find that as firms are required to privately disclose more information to the tax authorities, they also appear to increase public tax disclosures,” the authors wrote.

The study also provides insight into what aspects of corporate filings might interest the IRS. IRS pays more attention, for example, based on company size, foreign profitability, net operating losses, and uncertain tax benefits, while it pays less attention to cash effective tax rates.

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