As background, C corporations with more than $10 million in assets must generally file a Schedule UTP to report any tax positions for which they have recorded a financial reserve (or did not reserve because the taxpayer expects to litigate the position) Historically, for each position, taxpayers were required to disclose:
- The pertinent Code section
- Whether the position was permanent, temporary, or both
- The employer identification number of any passthrough entity involved
- Whether the position was a major tax position
- The rankings of the position by size without disclosing the amount of the reserve associated with each position
This year, the IRS is mandating that taxpayers disclose additional information on their Schedule UTP compared to prior years, including:
- Any revenue rulings, revenue procedures, notices, court decisions, or Treasury regulations that are contrary to the tax position
- The location of the position on the tax return by form/schedule and line number and the amount of income tax benefit
The final version of the form and instructions clarified key points from draft versions released earlier in 2022. Most notably, the IRS revised the instructions to remove the phrase "incremental amount," meaning the amount that must be reported on Schedule UTP is now simply the amount reported on the line identified elsewhere on the schedule. This change helps alleviate potential taxpayer confusion over the exact amount that must be reported on the Schedule UTP.
The IRS also removed private letter rulings, technical advice memoranda, chief counsel advice, field service advice, and general counsel memoranda from the list of contrary guidance that must be disclosed — likely because these items are non-precedential rulings that a taxpayer could not rely on to argue its position (other than to avoid penalties).
The final schedule and instructions continue to require taxpayers to identify contrary court decisions without distinguishing between court opinions that would be binding on a taxpayer and those that would not be binding upon such taxpayer, however. For example, a taxpayer in the Fourth Circuit still would need to identify pertinent contrary authority in the Seventh Circuit even though that circuit is not directly binding on the taxpayer.
The IRS also released a statement accompanying the release of the final schedule and instructions, noting "the IRS policy of restraint as set forth in Announcement 2010-76 remains in effect." This announcement generally notes that if a document is privileged — e.g., attorney-client privilege, the tax advice privilege under Section 7525 of the Code, or the work product doctrine — and the document was provided to an independent auditor as part of an audit of the taxpayer’s financial statements, the IRS will not assert during an examination that privilege was waived by such disclosure.
Given the plethora of notable updates to the Schedule UTP and accompanying instructions, taxpayers should carefully review the new rules, assess any potential uncertain positions and ensure compliance with the updated requirements.
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