At last, companies have some long-awaited guidance from the Internal Revenue Services on how to complete and file the new Schedule UTP, which asks companies to rank their uncertain tax positions.

The IRS posted answers to seven frequently asked questions for corporate taxpayers that are facing the filing requirement with their 2010 tax return. Companies are required to complete the new Schedule UTP to inventory and explain any areas in their tax return where they've claimed tax benefits that might not hold up under scrutiny or legal challenge. The IRS is looking for “concise descriptions” of any uncertain tax position where a company has booked a reserve in financial statements, or where it has not booked a reserve specifically because it expects to litigate the position.

Tax experts have peppered the IRS with plenty of questions about some of the specific language in the Schedule UTP requirement and instructions. In the new guidance, the IRS answers seven of the questions is hears most often.

Questions focus on how IRS requirements compare with financial statement requirements for reporting uncertainty in tax positions and how companies should treat net operating losses and credit carryforwards. They also address how companies should look at interest and penalties when ranking uncertain positions on the form, and how the IRS will apply its “policy of restraint” around asking for privileged information in connection with UTP filings.

The IRS says it is looking for disclosures consistent with the decisions companies make when establishing reserves for uncertain tax positions for financial accounting purposes. If a company records a reserve for a particular position, then reverses it in a subsequent interim period before it files its tax return, the IRS will still expect to find that position in the schedule if the financial statements for that subsequent period are not audited. If the interim period report is audited, then the company can leave that position off the UTP form, the IRS says.

When the IRS finalized the UTP filing requirement, it also promised to extend its policy of restraint to include any documents that related to the uncertain tax positions disclosed in the new filing. Tax experts had plenty of questions about whether that relates to issues that are caught up in appeals and tax court proceedings. In its recent guidance, the IRS affirms that the policy of restraint applies in those situations as well, and it plans to make revisions to its “chief counsel directives manual” to put more teeth into it.