"New FAQs on Schedule UTP Offer Necessary Clarifications, Practitioners Say"Tax Notes Today
George Hani discusses the batch of new frequently asked questions (FAQs) on uncertain tax position reporting posted to the IRS website July 19, 2011. Hani said some of the guidance merely confirmed the approach many practitioners had been providing based on the overall content of the rest of the instructions and the policy behind the new schedule. But because the schedule is new, "people are nervous about how to comply, so any clarification is welcome," he said, adding, "I hope the IRS continues to roll out these kinds of FAQs even as we fast approach the September 15 filing deadline applicable to most large corporations."
Hani disagrees with the Service's position that taxpayers should not file blank UTP schedules. "I have heard IRS officials say this over and over; however, I always advise the opposite," he said. "Especially while Schedule UTP is a new program, I think it is prudent for taxpayers who meet the asset thresholds to submit a blank UTP with a statement along the lines of 'we have no tax positions required to be reported.'" Hani comments that if the taxpayer meets the asset threshold but does not submit a form, there will be the inevitable question of why not. "I see no downside to preempting that question and telling the IRS upfront that you have nothing to report," he said.
Regarding the IRS's instruction on not reporting the future use of a net operating loss (NOL) or credit related to an earlier tax position that was already disclosed on Schedule UTP, Hani cautions that the pronouncement should not be read "to mean that you never report based on the future use of the NOL." He continues that the IRS may be taking the UTP reporting requirement too far when a recorded reserve involves a line item "on any schedule or form" attached to the 1120. "I think the rule should be limited only to tax positions for which an adjustment would change a line on the return, with the result ultimately being a change in tax due," he said. "If the uncertainty does not change your U.S. tax liability, either this year or some other year due to a carryforward or carryback, then why does it need to be on Schedule UTP?"