IRS Issues Additional Guidance on Schedule UTP - Uncertain Tax Position Statement


By Evan Ogrodnik

In September 2010, the Internal Revenue Service ("IRS") issued additional guidance in Announcement 2010-75 with respect to the new requirement for reporting Uncertain Tax Positions ("UTP"). This recent guidance is in response to reviewer comments on the draft schedule and instructions issued on April 19, 2010. Several modifications were made to the initial draft.

With goals including increased transparency, the prioritizing of taxpayers for examination and improved tax examination efficiencies, the IRS will require certain corporations (public or private) with audited financial statements, and that file IRS Forms 1120, 1120-F, 1120-L or 1120-PC, to file Schedule UTP beginning with the 2010 tax year. Corporations that prepare compiled or reviewed financial statements are currently not subject to this filing requirement (nor are pass-through entities or tax-exempt entities).

According to the 2010 Instructions for Schedule UTP, corporations subject to this filing will be required to disclose any tax positions taken on their U.S. federal income tax return where the corporation has recorded a reserve with respect to that position on its audited financial statement, or the corporation did not record a reserve for that tax position because the corporation expects to litigate the position. These disclosures would be similar to reserves recorded pursuant to FIN 48 required for GAAP financial statements, but apply only to federal tax positions, and not to state or foreign tax positions taken. If the corporation has not recorded a financial statement reserve because either (a) there were no uncertain positions taken on the tax returns or (b) the impact of the uncertain positions would be immaterial to the financial statements as a whole, then there will be no IRS reporting requirement on Schedule UTP.

In its initial guidance, the IRS proposed that the UTP filing requirement would apply to all business taxpayers with assets of at least $10 million. This has subsequently been revised, and corporations subject to this filing requirement will now phase-in over a five-year period. Beginning with the 2010 tax year, only corporations with total assets in excess of $100 million will be required to file the Schedule UTP. This threshold will be reduced to $50 million for the 2012 and 2013 tax years, and will be further reduced to $10 million beginning with the 2014 tax year and thereafter.

The IRS's initial UTP proposal required corporations to report on the Schedule UTP the maximum tax adjustment for each tax position listed. The IRS has removed this part of the reporting, and instead will require each corporation to rank all of the tax positions listed by size. Additionally, corporations will be required to designate any individual tax position in which the reserve exceeds 10% of the total reserve recorded.

Each uncertain tax position listed will require a description of the tax position, including the relevant facts surrounding the tax treatment of the position taken, as well as "information that can be expected to apprise the IRS of the identity of the tax position and the nature of the issue."

It should be noted that corporations with uncertain tax positions taken prior to January 1, 2010 will not be required to report them on the 2010 Schedule UTP. Only current-year uncertain tax positions taken will be required to be disclosed on the 2010 form.

It is likely that this first year of preparing and filing the Schedule UTP could result in additional comments by practitioners and taxpayers, which may effect further changes in subsequent tax years.

Please consult a member of Schneider Downs' tax advisory group with any questions you may have.  For specific questions on the content of this article, you may contact Evan Ogrodnik at eogrodnik@schneiderdowns.com




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