Spring advocacy spadework to produce green shoots: TEI urges changes to schedule UTP instructions; recommends group taxation in Canada; comments on OECD's VAT guidelines; proposes VAT improvements in the EU; and files amicus brief in state nexus case.

• Position: Recent Activities

As gardeners and farmers know well, producing sound, healthy plants is a year-round endeavor. From tilling the soil, to planting and fertilizing, to weeding and pruning, each season brings its own rhythms and special chores. So, too, the garden of tax policy and administration requires year-round tending. In the spring of 2011, TEI's technical committees were busy planting seeds relating to the value-added tax in the European Union, potential new corporate tax machinery in Canada, the States' assertions of economic nexus, and uncertainty and ambiguity from Schedule UTP.

Thus, TEI filed comments with the Internal Revenue Service on the instructions and FAQ webpage for Schedule UTP. In Canada, where corporate group taxation has been slow to take root, TEI filed comments with the Department of Finance urging it to develop a legislative mechanism to permit the transferability of losses and other attributes among commonly owned corporations. Across the Atlantic, the Institute submitted comments on two VAT projects. First, TEI commended the Organisation for Economic Co-operation and Development for draft guidelines to ensure the neutrality of VAT systems for businesses. Second, TEI made numerous recommendations to the European Commission aimed at producing a simpler, more business friendly VAT system across the European Union. Finally, the Institute submitted an amicus brief to the Supreme Court of the United States in a case from Iowa, urging it to reject the State's efforts to tax a company soley on the basis of its having customers within its borders.

Schedule UTP

On April 22, TEI urged the IRS to provide additional guidance on the reporting requirements for uncertain tax positions (UTPs) on Schedule UTP, Uncertain Tax Position Statement. The IRS has developed a UTP webpage with Responses to Frequently Asked Questions (FAQs) to supplement the instructions to the schedule. The comments, which take the form of additional suggested questions and responses for the IRS FAQ webpage, identified topics that TEI said would benefit from additional guidance. Summarizing the letter's recommendations, TEI President Paul O'Connor said that, "As a general rule, the IRS should adopt a standard that uncertain tax positions should be reported on Schedule UTP when that item is both first reserved and relevant or could be relevant to the computation of tax on the return."

The Institute's comments address a wide range of circumstances, including general filing requirements for Schedule UTP; reporting of uncertain positions the taxpayer expects to litigate; and reporting of positions that increase tax attributes, especially net operating loss carryovers with uncertain tax positions. In one example, TEI's suggested the IRS clarify that there is no requirement to update the Schedule UTP for changes in the reserve position as a result of amending a return for items unrelated to the uncertain tax position items. "Changes in reserve positions," TEI recommended, "should be reported in the Schedule UTP for the tax year in which the position was reserved in the audited financial statement. In the case of amended returns that result from carryback items that include an uncertain tax position, the position would be disclosed in the year the carryback originated (i.e., the 'source year'); an additional disclosure in the year to which the item is carried would be duplicative."

The Institute also recommended that the result in Example 9 in the Schedule UTP instructions be limited to the rare situations where a reserve is not recorded in the year of the deduction but is recorded in the year the NOL is used. TEI pointed out that "in the more typical case, a reserve is recorded in the year in which the deduction position is taken and not in the year in which the NOL is...