On December 22, 2022, the Internal Revenue Service (IRS) finalized changes to Schedule UTP (Uncertain Tax Position Statement) and the UTP instructions for the 2022 tax year.
What is an UTP?
An UTP is a position taken on a tax return for which uncertainty exists regarding the tax treatment and whether the tax authorities will accept the treatment. Applying tax law or having a lack of guidance on how a taxpayer applies the law to a given set of facts is often subject to ambiguity. Examples include, but not limited to, a taxpayer’s decision regarding the reporting of an item of income, gain, loss, deduction, or credit.
Since tax year 2010, Schedule UTP has been used by certain corporations to report UTPs with their annual income tax returns. Corporations are required to report current and prior year federal UTPs if a reserve has been established and documented on its audited financial statements and the following criteria are met:
- The corporation files Form 1120, U.S. Corporation Income Tax Return; Form 1120-F, U.S. Income Tax Return of a Foreign Corporation; Form 1120-L, U.S. Life Insurance Company Income Tax Return; or Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;
- The corporation has assets that equal or exceed $10 million;
- The corporation or a related party issued audited financial statements reporting all or a portion of the corporation’s operations for all or a portion of the corporation’s tax year; and
- The corporation has one or more tax positions that must be reported on Schedule UTP.
Changes to Schedule UTP
The finalized Schedule UTP requires taxpayers to disclose the following for each UTP:
- The IRS publications (revenue ruling, revenue procedure, notice, or court decision) otherwise reportable on Form 8275 for a tax position taken contrary to a rule;
- Any Treasury regulations that are contrary to the position taken;
- The location of the tax position by form or schedule with line number;
- The amount of the line item on the taxpayer’s return that includes the UTP
In addition, the finalized instructions include added examples of what constitutes an adequate explanation for the concise description of a UTP. Taxpayers are required to focus on the pertinent facts affecting the tax treatment of the position.
Taxpayers with UTPs now have the final form and instructions to use for their 2022 tax reporting. Taxpayer’s will need to review their past practices to make sure that future filings comply with the finalized changes.
Dana R. Borys, an Accountancy Corporation is a boutique tax consulting, compliance, and representation firm working with start-up/emerging growth companies and affluent individuals. Building connections beyond the code.