Tax Alert: Schedule UTP Update: IRS Moves Forward With Uncertain Tax Position Reporting
10/01/2010
On September 24, 2010 the Internal Revenue Service ("IRS") released the final version of the form and instructions for Schedule UTP, which will be effective for 2010 for large corporations.
In January 2010, the IRS released several announcements regarding its intention to require corporations (not including S corporation) to report their uncertain tax positions annually and asked for comments regarding its proposal. Practitioners responded to the initial proposal and on September 24th the IRS issued Announcement 2010-75 (“Announcement”), which finalizes the form and instructions. The Announcement made numerous changes as a direct result of the comments received by the public. The IRS listened carefully and the most significant changes are noted as follows:
Phase In
Originally, Schedule UTP required all corporate taxpayers (except S corporations) who had at least $10 million in assets and GAAP financial statements to report their uncertain tax positions. The IRS will now require 2010 reporting for only those C corporations with assets of $100 million or more. The total assets threshold will be reduced to $50 million starting in 2012 and $10 million starting in 2014. In addition, the IRS is also considering expanding Schedule UTP reporting for pass-through (S corporations and partnerships) and tax-exempt entities for 2011 or later years (no requirement currently exists for these entities).
Removal of Maximum Tax Adjustment and Reporting of Rationale for Uncertainty
The IRS eliminated the requirement that taxpayers provide a maximum tax adjustment. The final schedule will require taxpayers to rank their tax positions from highest to lowest based on the amount of Federal income tax reserve, and to designate those tax positions for which the reserve exceeds 10 percent of the aggregate amount of all reserves. The taxpayer will no longer have to provide a rationale or reason why a position is uncertain, merely a concise description of each item. The thought process for each assessment will no longer be required.
Administrative Practice Exception Dropped
The IRS commissioner is dropping from the original proposal the requirement that a corporation report a tax position for which no reserve was recorded because the corporation based its decision on an administrative practice determined during an IRS exam.
Similar to its impact on financial reporting and footnote disclosures under ASC 740-10 (FIN 48), the IRS has issued Schedule UTP to achieve its goal of increased transparency. Many companies underestimated the time, effort, and resources required when implementing ASC 740-10 for financial statement purposes. A thorough review of the Form and Instructions should be performed as soon as possible in order to start to accumulate the required information necessary to complete the form properly.
For more information about Schedule UTP and its impact on large businesses and their operations, or for information about any other tax-related issues, please contact Neil Gerard, CPA, or your J.H. Cohn engagement partner, at 877-704-3500. <
Neil Gerard, CPA, is a J.H. Cohn tax partner. He may be reached by email or at 973-403-7995.
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