FEATURE-Cos lobby against Obama bid for more tax documents

* Risky tax positions would be estimated

* Companies say IRS agents could be too ambitious

By Kim Dixon

WASHINGTON, March 15 (Reuters) - Major U.S. companies are trying to narrow the reach of an Obama administration plan that would require big businesses to disclose tax shelters and other complex tax structures that could be challenged by the government.

The IRS in January proposed mandating that companies estimate maximum federal tax liability associated with each "uncertain" tax position taken. Companies fear that disclosing such information could unleash U.S. tax agents eager to comb through such disclosures for easy pickings.

"It's akin to the shark and the blood in the water," Henry Wolf, a former chief financial officer at Norfolk Southern (NSC.N), said at a recent KPMG session on the topic. "Any good red-blooded IRS agent is going to be under enormous pressure not only to delve into the issue," but also to follow up with an exam, he said.

IRS chief counsel William Wilkins has defended the proposal against loud complaints from corporate officials in several recent forums in Washington. The IRS says the new requirements will speed audits and make tax administration more efficient.

Responding to Wolf, Wilkins said there was no quota instruction to agents. On the other hand, he said, the IRS is "not interested in reducing court cases by letting issues hide under rocks."

Companies are already developing lists of iffy tax positions under new accounting rules.

"Some have asked why the IRS exam team would be interested in examining these issues," Wilkins said to federal tax lawyers at a different panel. "The question answers itself."

Companies sought and won a one-month extension of the comment period earlier this month, giving them more time to make their case that the proposal will create conflicts between advisers and companies, and that it will increase costs, among other protests.

Although the IRS is clearly going forward with the proposal, business may influence how the risk will be spelled out.

For example, the IRS may compromise and allow financial ranges of tax liability rather than specific numbers, noted Hank Gutman, a former chief of staff of the congressional joint tax committee and current director of the Tax Governance Institute, a KPMG tax policy group.

"They've indicated flexibility" on that issue," Gutman said.

The IRS is also mulling penalties for when taxpayers fail to comply with the disclosure rules and may ask Congress for authority to boost penalties. Companies with total assets of $10 million and higher would be subject to the new policy.

The initiative comes amid an increased push by IRS Commissioner Doug Schulman and President Barack Obama to collect taxes previously evaded by the wealthy and big corporations.

NEXT UP, SUPREME COURT

The battle between the IRS and business community will heat up again later this month when the government makes its case to the Supreme Court in a closely watched and related case.

Textron Inc (TXT.N), the largest maker of corporate jets, is appealing a lower court ruling in favor of an IRS bid for work papers that the company says should be legally privileged.

The company withheld documents from the IRS including a spreadsheet compiled by its lawyers listing items of potential dispute with the IRS, and its odds of winning.

The Tax Executives Institute argued in a brief to the Supreme Court that giving IRS access to these papers unfairly gives the government insight into their legal advice.

"It involves whether the IRS can properly gain access to the thoughts, mental impressions, opinions, and legal theories of a taxpayer's attorneys," wrote the group, an association of corporate executives.

A key fear among corporate defense lawyers is that the Textron decision will be applied in contexts beyond taxes, such as product safety cases, according to Scott Smith, a corporate defense lawyer at Bradley Aran Bolt Cummings LLP.

He gave the example of a case involving an industrial accident at a company that proactively inspects its shop floor for problems. If litigation ensues, someone could claim access to records claiming the company knew of a problem, he said.

"The short of it is, if you think someone is listening in on your conversation, you're not going to be candid," said Smith, who is a member of the Defense Research Institute, a group that wrote a brief backing Textron .

Wilkins said the IRS considered these views before crafting the uncertain tax guidance and acknowledged it is a "challenging" issue for companies.

"I don't doubt that people can and will come up with reasons for why the IRS should not ask for this information," he said. (Reporting by Kim Dixon; Editing by Steve Orlofsky)