Updates and guidance on key IRS practice developments.

Author:Chambers, Valrie
 
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Procedure & Administration

Schedule UTP: Comparative Statistics Through the First Transition Year

Schedule UTP, Uncertain lax Position Statement, was first required to be filed with tax year 2010 income tax returns by corporations that reported assets of $100 million or more on their tax return balance sheets and that met other filing criteria. Under transition rules for TY 2012 and TY 2013, the asset threshold dropped to $50 million, and it drops to $10 million for TY 2014 and later returns.

This item provides an overview of the IRS's statistics on Schedule UTP through the first three tax years of filings (TY 2010-2012). Since 2012 is the first year of required reporting for firms with lower asset levels, this item compares filing data for Schedule UTP filers that have assets in amounts above and below the first transitional threshold of $100 million. This item is an update to the Schedule UTP statistics discussed by Robert Adams in the Tax Practice & Procedures column of the October 2012 (p. 700) and July 2013 (p. 482) issues of The Tax Adviser. Those articles also outlined the basic Schedule UTP filing requirements, statistics for filers in the Compliance Assurance Program, and IRS treatment of Schedule UTP filers.

Additional information is available on the AICPA "Disclosure of Uncertain Tax Positions" webpage at tinyurl.com/Icfrv80.

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The IRS Large Business &International (LB&I) Division created Schedule UTP and maintains a centralized review process that enables it to (1) review all Schedules UTP filed and analyze them to determine if the disclosures comply with the relevant instructions; (2) select issues for audit and identify trends; (3) identify gaps in guidance and move to fill them; and (4) determine the proper use and treatment of Schedules UTP.

How Schedule UTP Statistics Relate to Overall LB&I Corporate Income Tax Return Statistics

It is valuable to understand the size of the population of actual Schedule UTP filers relative to the overall population of corporate income tax return filers that potentially could be required to file the schedule. The best way to make that comparison is to analyze the characteristics of the corporations filing Schedule M-3, Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More.

Charles E. Boynton, Ph.D., CPA, the program manager and senior program analyst, Planning, Analysis, Inventory, and Research (PAIR) at LB&I, and his co-authors have written a series of articles analyzing LB8d's Schedule M-3 filing population (the M-3 studies). The corporate population in the M-3 studies only includes actual Form 1120 returns. The M-3 studies present the number of included companies that issue audited financial statements, by size of reported total assets. However, there are two areas of incongruence in relating the Schedule UTP filers to the M-3 studies population. Both the M-3 studies population and the Schedule UTP population include Form 1120 filers, but the M-3 studies exclude filers of Forms 1120-PC, US. Property and Casualty Insurance Company Income Tax Return, 1120-L, US. Life Insurance Company Income Tax Return, and 1120-F, US. Income Tax Return of a Foreign Corporation. There are also timing differences. Schedule UTP statistics are grouped by the return form year printed on the face of the form filed. (For example, all relevant returns filed on 2011 forms will be counted in the 2011 statistics.) However, the M-3 studies use compilations made by the IRS's Statistics of Income (SOI) Division, which compiles its statistics on a fiscal year, looking at returns with year ends from July 31 of a given year through June 30 of the following year.

According to the M-3 studies for the SOI 2010 and 2011 years, the Schedule M-3 filing populations (and estimate of potential Schedule UTP populations) summarized by financial statement type and asset size were as shown in the exhibit below.

Using this table, one can approximate the proportion of potential filers of Schedule UTP, those corporations with $10 million or more of assets that also issue audited financial statements that file Schedule UTP. Note that the M-3 study for 2012 has not been conducted as of this writing, so its analysis is excluded.

Schedule UTP Filing Statistics: TY 2010 and TY 2011 Return Averages Compared to TY 2012 Returns

* Based on the data published as of this writing at tinyurl.com/d920731, and other information PAIR shared for this article, here is how Schedule UTP statistics are trending. (Note that the IRS regularly updates these statistics.) Although for TY 2012, only companies with assets above $50 million were required to file Schedule UTP, some companies with fewer assets filed Schedules UTP in each of the three years. Therefore, in this analysis, one category includes filers with assets of "less than $100 million" rather than filers with asset amounts "between $50 million and $100 million." An average of 2,167 taxpayers filed Schedule UTP for each of TY 2010 and TY 2011; so far, for TY 2012, the IRS has processed 1,940 taxpayer filings of Schedule UTP, of which 1,742 taxpayers had assets of more than $100 million and 198 had assets of less than $100 million, which is roughly the same rate for TY 2012 as for TY 2010 and TY 2011. The 2,167 filers represent about 10% of the potential Schedule UTP filers (21,736 throughout this analysis) and only about 5.3% of the 41,188 filers in the total LB&I corporate population. The 198 filers with assets of less than $100 million represent about 1% of the potential Schedule UTP filers and only about 0.5% of all the filers in the total LB8d corporate population.

* Generally, the 388 taxpayers that filed Schedules UTP that included concise descriptions of uncertain tax positions (UTPs) for TY 2010 and TY 2011 were Coordinated Industry Case (CIC) taxpayers (that are constantly audited), and they reported an average of 3.97 UTPs per Schedule UTP. For TY 2012, 294 CIC taxpayers...

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