IRS holds to timetable on reporting of uncertain tax position

The IRS has issued drafts of new Schedule UTP (Uncertain Tax Positions), which business taxpayers will use to report their uncertain tax positions with their annual tax return, beginning for the 2010 tax year. The draft schedule reflects the IRS's decision to move forward quickly with its controversial proposal to require certain taxpayers to report uncertain tax positions with their annual tax returns.

Reporting

As proposed by the IRS earlier this year, reporting will apply to corporations with assets of at least $10 million that have recorded an income tax reserve on an audited financial statement under generally accepted accounting principles (GAAP) or similar standards. Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48) requires companies that use GAAP to create a reserve on their financial statements for each uncertain tax position, unless the company determines that it has a greater-than-50-percent chance of prevailing in a challenge by a tax authority.

The IRS has proposed to require reporting of uncertain tax positions for the current tax year and for prior tax years if the decision whether to record or not to record, based on expectations of litigation on IRS administrative practices, a reserve was made at least 60 days before the return is filed. Positions determined within 60 days may be reported with the return for either the current year or the following year.

2010 tax year

The following taxpayers in the $10 million-plus asset category will be expected to file Schedule UTP beginning with the 2010 tax year:

• Corporations that file Form 1120, U.S. Corporation Income Tax Return;
• Insurance companies that file Form 1120-L (Life Insurance Companies) or Form 1120-PC (Property and Casualty Companies); and
• Foreign corporations that file Form 1120-F.

Other taxpayers

As of now, the IRS will not require Schedule UTP from other businesses, such as real estate investment trusts, pass-through entities, or tax-exempt organizations. The IRS may require Schedule UTP from some or all of these taxpayers in the future. Many small business groups are also concerned that, with one or two years of success under their belts, the IRS will start asking businesses below the $50 million asset level to more fully discuss their tax positions.

The IRS is expected to hold a hearing on the proposed reporting requirements well before year-end. While it must present requirements as "proposed" at this point, because of federal rules, it seems clear that the IRS intends to move forward with its plans and only certain peripheral details are likely to change, if at all. Our office will keep you posted of developments.

Announcement 2010-30, Draft Schedule UTP, Instructions for Schedule UTP