October 21, 2022
IRS updates Schedule UTP to report uncertain tax positions
The IRS has released a draft of the new Schedule UTP, Uncertain Tax Position Statement, with accompanying instructions. The updated draft requires corporations to submit additional information, including more robust concise descriptions, in an attempt to meet the schedule's original goals of earlier certainty, consistent treatment and efficient use of resources.
Schedule UTP must be attached to 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 Company Income Tax Return, for a corporation that (1) has assets of at least $10m, (2) issues or is included in audited financial statements and (3) has one or more tax positions that must be reported on Schedule UTP.
Currently, corporations must report federal income tax provisions on Schedule UTP if two conditions are met. First, the corporation has taken a tax position on its US federal income tax return for the current or prior tax year. Second, the corporation or a related party has recorded a reserve for that tax position in audited financial statements or did not record a reserve for that tax position because it expects to litigate the position.
The draft updated Schedule UTP instructions alter the wording of the second condition to include corporations that have recorded a liability for unrecognized tax benefits for the tax position rather than a reserve.
The draft instructions also require corporations to report additional information about their uncertain tax positions, including (1) the ruling or regulation sections contrary to the positions taken on the tax return and (2) the form or schedule, line number and amount associated with the line on the return.
Filing a Schedule UTP in lieu of Form 8275 or 8275-R
Corporations can avoid accuracy-related penalties by filing the Schedule UTP in lieu of a Form 8275 or 8275-R. The current Schedule UTP, however, requires less information than either form. The revisions to the Schedule UTP align it with Forms 8275 and 8275-R by requiring corporations to identify any relevant statutory provision, revenue ruling, revenue procedure or other guidance for tax positions contrary to a rule (such as a statutory provision or IRS Revenue Ruling). For tax positions contrary to a Treasury regulation, corporations must now enter the full regulation citation on Schedule UTP.
Additional information required
The new Schedule UTP adds three columns requiring corporations to identify the form or schedule, line number and amount associated with the line on the return. This additional information is required for all items included on Schedule UTP, including any items of deferred income or unearned revenue.
Following on the IRS's August 2022 update of Schedule UTP Frequently Asked Questions, the draft instructions also include additional guidance and examples on the increased level of detail necessary in a concise description. Corporations attaching a Schedule UTP must include a concise description of the uncertain tax position with the relevant facts affecting the tax treatment of the position and information that identifies the tax position, its amount, unit of account and the nature of the controversy or potential controversy.
The IRS has requested comments on the draft schedule and instructions by November 18, 2022.
The change in the language of the second condition from recording a reserve for the tax position to recording an unrecognized tax benefit liability aligns the language with ASC740-10 requirements.
The revisions also align Schedule UTP with Forms 8275 and 8275-R. Currently, corporations can file the Schedule UTP in lieu of Forms 8275 or 8275-R and receive the same penalty protection while providing less information. With the revisions, corporations will have to provide the same information when using either the schedule or a form.
Finally, and as seen with the August 2022 revision to the Schedule UTP FAQs, the draft instructions require more descriptive concise statements so the IRS can better identify and understand the corporation's position and the nature of the issue.