IRS additional guidance on uncertain tax positions still concerns financial executives.

AuthorWei, Ronald
PositionFinancial reporting - Internal Revenue Service

On Sept. 24, the Internal Revenue Service finalized Schedule UTP (Form 1120-Uncertain Tax Position Statement) and issued additional guidance that marked a revision from its original proposal. Under the new guidance, the IRS determined that certain companies would be required to include Schedule UTP on returns reflecting the 2010 calendar year or fiscal years.

While recent guidance made substantial improvements to the initial proposal--including requirement of disclosure, elimination of a maximum tax adjustment for each position, influence of policy of restraint and more--the new rules are still of some concern to financial executives.

The companies affected would include those that have assets that are equal to or in excess of $100 million and that issued audited financial statements reporting corporation's operations for the tax year.

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The IRS schedule will not be implemented for 2009 tax returns filed this year. Tax positions taken in years prior to 2010 do not need to be reported in 2010 or a later year. Schedule UTP does not need to be filed for short tax years ending in 2010.

There would be a five-year phase-in for smaller companies with fewer assets. For the 2012 tax year, companies with $50 million or more in assets may be required to report UTPs and in 2014, companies with $10 million in assets or greater may be required to report.

From an IRS perspective, the idea is to promote greater transparency, clarity and certainty. What is needed is the quick and efficient identification of significant issues underlying a company's tax return. Existing business tax returns do not require identifying and explaining uncertain tax positions. Based on those principles, the IRS designed schedule UTP to report basic information regarding a corporation's uncertain tax positions on a self-assessment tax system.

IRS Commissioner Douglas Shulman said the service wants to change the traditionally adversarial relationship between corporate taxpayers and the IRS, and that the UTP project would be integral in achieving that objective. He believes It will enable the commission to cut down on the time corporations spend "playing hide and seek," as well as the time it spends trying to figure out which issues to audit.

Schedule UTP requires reporting a corporation's federal income tax positions for which the corporation or a related party has recorded a reserve in an audited financial statement. The U.S. federal income tax positions are...

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