IRS Devising Additional Guidance on UTP Reporting, Focusing on Reserves and NOLs

Jun 02, 2011   

In our continuing coverage of the new IRS regulations for Schedule UTP for Uncertain Tax Positions, we just learned that the IRS is working on additional guidance to aid taxpayers in properly reporting their positions. After the IRS finalized its initial UTP regulations on December 15, 2010, companies grappled with reporting amid uncertain definitions and a lack of guidance. The IRS responded by releasing “Frequently Asked Questions on Schedule UTP” on its website. Now, BNA reports that the IRS is working to clarify what it means to record a reserve and how to treat net operating losses (“NOLs”). This much-needed update comes as the nations largest taxpayers are preparing their first round of Schedules UTP for tax year 2010.

The previous “Frequently Asked Questions on Schedule UTP” addressed concerns about reporting requirements and the expanded policy of restraint. With respect to UTP reporting requirements, the FAQ guidance provided that:

    · For a corporation subject to FIN 48, a tax position is considered “sufficiently certain so that no reserve was required” and therefore need not be reported on Schedule UTP if the position is “highly certain” within the meaning of FIN 48.

    · A corporation must report its tax position on Schedule UTP if it records a reserve in an audited financial statement for a tax position it expects to take in its 2010 tax return, but later eliminates the reserve in a subsequent unaudited interim financial statement issued before filing its 2010 return. However, if the corporation reconsiders whether a reserve is required for a tax position and eliminates the reserve in an interim audited financial statement issued before the tax position is taken in a return, the corporation need not report the tax position to which the reserve relates on the Schedule UTP.

    · A corporation should not report the use of an NOL or credit carryover in a post-2009 filing if the portion used includes a tax position taken pre-2010 for which the corporation already recorded a reserve.

    · The size of a tax position is the amount of the reserve recorded for that position. If a corporation does not separately identify an amount of interest or penalties in its books and records as relating to a particular tax position, then the corporation should not include those interest or penalties in the size of that position.

    The guidance also clarified the IRSs policy of restraint. The FAQs provided that:

    · The Announcement 2010-76 changes to the policy of restraint apply to documents requested by Counsel after the filing of a Tax Court position. While Appeals does not expect to conduct frequent substantive fact-finding during its case consideration, the changes do apply to any request for documents during the administrative process of determining the correct tax liability.

    · Generally, Counsel attorneys will not issue discovery requests for documents or information that the IRS would not seek under its policy of restraint.

    · The Announcement 2010-76 changes apply to any request for documents outstanding or made after September 24, 2010, in any open examination.

If your corporation is struggling with proper UTP reporting or any other tax issues, let us ease your concerns. The attorneys at Fuerst Ittleman have extensive experience in corporate tax reporting and regulatory compliance. You can reach an attorney by emailing us atcontact@fidjlaw.com