Reporting uncertain tax positions.

• Author: Weber, Neal A.

The new IRS Schedule UTP, Uncertain Tax Position Statement, reporting uncertain tax positions has been interpreted as requiring corporate taxpayers to disclose their FIN 48 positions. While this proposition is not exactly correct, it has certainly caused concern among corporate taxpayers. In preparing for disclosure of uncertain tax positions on the Schedule UTP, it is important to understand the differences between financial statement reporting and federal income tax return disclosure.

Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, issued in June 2006 (and now located in Topic 740 of FASB's Accounting Standards Codification), has been effective for public reporting companies since 2007. Under FIN 48, a reporting company has to identify all its open tax positions and determine whether it is more likely than not that each tax position can be sustained on its technical merits. If so, the company must calculate how much of the tax benefit taken on the return can be reported in the financial statements. This is done according to the measurement system provided in the interpretation. For open tax positions that do not meet the more likely than not (MLTN) standard, the company may not report any benefit from the position unless, and until, the uncertain position is resolved in the taxpayer's favor or the statute of limitation for that issue expires.

Last year, the IRS proposed the new Schedule UTP to be filed with tax returns for calendar year 2010 by taxpayers that file Forms 1120, U.S. Corporation Income Tax Return; 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; 1120-L, U.S. Life Insurance Company Income Tax Return; and 1120-F, U.S. Income Tax Return of a Foreign Corporation, where the Schedule L balance sheets in those forms report total assets of $100 million or more (T.D. 9510; Announcement 2010-75). (There are transition rules that reduce the total asset threshold for filing to $10 million for 2014 tax returns.) IRS guidance for Schedule UTP does not specifically define what constitutes an uncertain tax position. Instead, the IRS refers to "a tax position relating to a specific federal tax return for which a taxpayer is required to reserve an amount under FIN 48" (Announcement 2010-9). Schedule UTP requires taxpayers to list uncertain tax positions, but the schedule is significantly different than the FIN 48 disclosure for the financial...