On September 24, 2010, the IRS released the final Schedule UTP (Uncertain Tax Position Statement) and instructions together with Announcement 2010-75 which sets forth taxpayer favorable changes to the original IRS proposal.
On January 26, 2010, the IRS released Announcement 2010-9 which disclosed its proposal to require certain business taxpayers to report uncertain tax positions on their income tax returns and requested comments on such proposal. On April 19, 2010, the IRS released a draft Schedule UTP and instructions and Announcement 2010-30 which explained the draft Schedule UTP and requested comments. Numerous comments were submitted to the IRS.
On September 9, 2010, the IRS published a Notice of Proposed Rulemaking which contains a proposed rule requiring corporations to file a schedule disclosing uncertain tax positions. The IRS plans to issue final regulations by the end of 2010.
The final Schedule UTP and Announcement 2010-75 leave unchanged the general rule that the only corporations that are required to file Schedule UTP are those which have audited financial statements and file Form 1120, U.S. Corporation Income Tax Return; Form 1120-F, U.S. Income Tax Return of a Foreign Corporation; Form 1120-L, U.S. Life Insurance Company Income Tax Return; or Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return.
At least for taxable year 2010 no Schedule UTP is required to be filed by pass through entities and tax exempt entities.
The final Schedule UTP and Announcement 2010-75 make the following significant changes to the April draft Schedule UTP:
- A five-year phase in of the reporting requirement based on a corporation’s asset size is adopted. Originally, the IRS proposed that the reporting requirement would apply to business taxpayers with total assets of $10 million or more. In the final Schedule UTP, corporations which have total assets of $100 million or more must file Schedule UTP commencing with 2010 tax years. The threshold is reduced to $50 million commencing with 2012 tax years and to $10 million commencing with 2014 tax years.
- No reporting of a maximum tax adjustment is required. Originally, the IRS proposed that a corporation report a maximum federal income tax liability for each tax position listed in the Schedule UTP assuming the position was not upheld upon examination by the IRS. Instead of the original proposal, the final Schedule UTP requires a corporation to rank all of the reported tax positions based on the federal income tax reserve recorded for the position taken in the return and to designate those tax positions for which the reserve exceeds 10 percent of the aggregate amount of the reserves for all of the tax positions reported on the Schedule UTP.
- No reporting of the rationale and nature of uncertainty in the description of the position is required. Instead, the final Schedule UTP requires a concise description of the tax position including relevant facts sufficient to apprise the IRS of the identity of the tax position and nature of the issue.
- No reporting of administration practice tax positions is required. Originally, the IRS proposed that a corporation report on Schedule UTP tax positions for which no reserve was recorded because the corporation determined it was IRS administrative practice not to raise the issue in an examination.