Encouraged to modify or do away with the filing entirely, the Internal Revenue Service is taking a look at how it might revise Schedule UTP regarding uncertain tax positions.
The U.S. Treasury Inspector General for Tax Administration audited IRS use of Schedule UTP filings and determined the filing does not produce information that is useful in compelling compliance with tax obligations. As such, TIGTA told the IRS it should either modify Schedule UTP or remove it as filing requirement.
Schedule UTP requires corporate taxpayers to disclose where in their tax filings they may have uncertainty about the tax positions they’ve taken, to give examiners a roadmap to the taxpayer’s riskiest tax assertions. The IRS adopted the filing as an way to cut to the chase in corporate filings and help examiners focus their efforts.
The IRS adopted the controversial filing in the aftermath of an even more controversial requirement adopted by the Financial Accounting Standards Board, Financial Interpretation No. 48 (FIN 48), to require companies to disclose to investors they may have uncertain tax positions in financial statements.
TIGTA says examiners generally find Schedule UTP does not contain sufficient information to allow the IRS to achieve its original goal of making examinations more efficient. The audit found that the IRS comment and revision process when it developed Schedule UTP led to the elimination of some key elements that would have made the schedule more useful.
“The lack of detail and specifics related to the concise description of the reported tax position provide little more than a confirmation that certain issues exist,” TIGTA’s report says. As presented, disclosures of issues in Schedule UTP represent issues examiners would typically identify during the normal course of an examination, TIGTA says. Shortcomings in the form provide for limited use by examiners and group managers in the field, as well as by management in the IRS Large Business and International Division.
To be useful, the filing should require more detailed descriptions of reported uncertain tax positions or dollar amounts attached to such disclosed positions, the report says.
Details such as the reserve amount companies have established for each uncertain position and the maximum potential federal tax liability would make the form more useful.