IRS Schedule UTP: IRS Releases FAQs: IRS Releases Frequently Asked Questions and Answers Relating to Schedule UTP and the IRS Policy of Restraint

Sullivan & Cromwell LLP - March 25, 2011

On March 23, 2011, the Internal Revenue Service (“IRS”) posted a short list of frequently asked questions and answers (“FAQs”) relating to (i) the new IRS Schedule UTP (requiring reporting of “uncertain tax positions”) and (ii) the IRS’s “policy of restraint”.

The first filings of Schedule UTP are required with 2010 tax returns by corporations with assets in excess of $100 million. The final Schedule UTP and Instructions were released by the IRS on September 24, 2010, and on that same day the IRS announced that it had “expanded” its policy of restraint to forego seeking certain documentation relating to uncertain tax positions and the taxpayer’s preparation of Schedule UTP. Since then, the IRS has continued to receive questions. These FAQs address the following short list of questions:

  • what the Instructions meant by a tax position that is “sufficiently certain so that no reserve was required”;
  • whether a position must be reported on the Schedule if the taxpayer records a reserve for the position in audited financial statements but subsequently reconsiders and eliminates the reserve from future financial statements issued before the tax return is filed;
  • whether a pre-2010 net operating loss carryforward (“NOL”) or credit carryforward for which there is a reserve must be reported if the carryforward is used in 2010 or a later year;
  • whether reserves for interest and penalties must be included in the size of a position when ranking the position on Schedule UTP;
  • whether the expanded policy of restraint applies to (1) documents requested by IRS Appeals, and (2) documents requested by IRS Counsel after the filing of a Tax Court petition; and
  • the effective date of the expanded policy or restraint.