IRS Commissioner Doug Shulman is on a rampage to get corporate directors more involved in tax risk management, as I noted back in October. Since then, Shulman has upped the pressure on boards and management alike with a proposal to require companies to file a “concise description” of their uncertain tax positions and an estimate of how much they’re on the hook for if the Service happens to disagree with those positions.

Get it wrong, and upsetting the IRS might be the least of your problems. Because where Mr. Shulman leads, the plaintiffs’ bar is sure to follow …

Attorneys Seth C. Farber and Lawrence M. Hill describe Shulman’s proposal as “perhaps the broadest tax disclosure initiative in history” (stretching a point a bit, surely, but never mind), and one that “heralds future tax risks for corporations.” They point out that companies are already getting hit with shareholder suits based on tax issues. Wells Fargo, for example, got slapped with a shareholder derivative suit in January after a federal claims court rejected its $115 million tax deduction for “sale in/lease out” transactions. The complaint used some lively phrases from the court’s ruling, describing the tax transactions as “blatantly abusive” and “rotten to the core,” according to Farber and Hill.

Mr Shulman will likely press ahead with the new regs as soon as the comment period ends on June 1, according to The Hill.

Meanwhile, “the very existence of the [Wells Fargo] litigation drives home the reality that directors today will be expected to monitor the corporation’s tax risks,” Farber and Hill note. “With proper guidance and procedures, that duty of oversight need not be onerous, but it is one that the modern director should be sure to include on the board’s agenda.” Sounds like sage advice. ###