As anticipated, Schedule UTP is effective for 2010 tax years. Not as anticipated, the IRS is phasing in the reporting requirement. For 2010, only corporations with assets in excess of $100 million are required to file Schedule UTP. The threshold decreases to $50 million starting with 2012 tax years and to $10 million starting with 2014 tax years.
There are several other changes from the original proposal:
- Corporations are NOT required to report uncertain tax positions for which no reserve has been recorded as a result of IRS administrative practices. In other words, a corporation may take a tax position that is not technically correct but for which the IRS has established an administrative practice of not challenging upon examination. Corporations are not required to disclose such tax positions on Schedule UTP.
- Corporations are NOT required to report the maximum tax adjustment for each disclosed uncertain tax position. Instead, each tax position is ranked based on the amount of the reserve (including interest and penalties) recorded in the financial statements. Expectation-to-litigate positions may be assigned any ranking number.
- If the reserve for an uncertain tax position is greater than or equal to 10% of the total reserve, (not including expectation-to-litigate positions) that tax position must be designated a “major tax position.”
- The instructions expressly state that there is no requirement to disclose the rationale and nature of the uncertainty. However, Schedule UTP still requires a concise description of the tax position, including a description of the relevant facts affecting the tax treatment of the position and information that reasonably can be expected to apprise the IRS of the identity of the tax position and the nature of the issue. Including a statement that a concise description is “Available upon Request” is not an adequate description.