Schedule UTP: IRS Releases New FAQs: IRS Provides More Information on Schedule Due with 2010 Returns

Sullivan & Cromwell LLP - July 22, 2011
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On July 19, 2011, the Internal Revenue Service (the “IRS”) revised and expanded its list of frequently asked questions (each, an “FAQ”) relating to Schedule UTP, which certain corporate taxpayers must complete to report to the IRS information about their “uncertain tax positions.” The guidance adds eight new FAQs to the original set of four FAQs that was released in March 2011 and revises the existing FAQ relating to the treatment of reserves for interest and penalties. The new FAQs address the following questions:

  • whether a taxpayer should file a blank Schedule UTP if it has no tax positions for which reserves have been recorded;
  • what it means to record a “reserve” for purposes of Schedule UTP;
  • whether a taxpayer who, after a reevaluation, decides a tax position taken on a prior year tax return is uncertain and records a reserve must report the tax position on Schedule UTP in the year the reserve is recorded even if the IRS is already aware of the tax position;
  • whether a taxpayer who, because of a change in circumstances, decides a tax position taken on a prior year tax return is uncertain but does not record a reserve because of an expectation to litigate must report the tax position on Schedule UTP in the year of the reevaluation;
  • whether a corporation that merges out of existence must report a tax position on the Schedule UTP filed with its final year tax return if the surviving corporation records a reserve with respect to that tax position;
  • whether the future use of a net operating loss (“NOL”) or credit carryforward for which a taxpayer records a reserve must be reported on Schedule UTP if the taxpayer recorded a reserve (and filed a Schedule UTP) in a prior year with respect to the tax position that created the carryforward;
  • whether a taxpayer must report accruals of interest on a pre-2010 tax position that are part of the reserve recorded with respect to that tax position; and
  • whether a taxpayer must report a tax position for which it has recorded a reserve if the tax position would result in an adjustment to a line item on a schedule or form attached to the taxpayer’s tax return (as opposed to a line item on the tax return itself) if the position was not sustained.