Instructions for Schedule UTP (Form 1120) - Notices


Part II. Uncertain Tax Positions For Prior Tax Years

When to Complete Part II

Complete Part II to report tax positions taken by the corporation in a prior tax year that have not been reported on a Schedule UTP filed with a prior year’s tax return. Do not report a tax position taken in a tax year beginning before January 1, 2010. See Transition rule under Reporting Uncertain Tax Positions on Schedule UTP, earlier.

Information from Related Parties

Check the box at the top of Part II if the corporation was unable to obtain sufficient information from one or more related parties and was therefore unable to determine whether a tax position taken on its prior year's tax return is required to be reported in Part II of this schedule.

Column (a). UTP No.

Continue the numeric sequence based on the last UTP number entered on Part I. For example, if the last UTP listed on Part I is 3, enter 4 for the first UTP listed on Part II. The UTP numbers on Part II, column (a), include a preprinted “P” prefix to indicate that they are positions for prior tax years. A corresponding UTP number with a letter “P” prefix will be used on Part III for reporting the concise description of the tax position. Do not skip any whole numbers, do not enter extraneous characters, and do not duplicate any numbers (e.g., P4, P5, P6, where the letters “P” are preprinted on the Schedule and the numbers are entered).

Column (b). Primary IRC Sections

See the instructions for Part I, column (b).

Column (c). Timing Codes

See the instructions for Part I, column (c).

Column (d). Pass-Through Entity EIN

See the instructions for Part I, column (d).

Column (e). Major Tax Position

See the instructions for Part I, column (e).

Column (f). Ranking of Tax Position

See the instructions for Part I, column (f).

Column (h). Year of Tax Position

List the prior tax year in which the tax position was taken and the last month of that tax year, using a six-digit number. For example, enter 201112 for tax years ending December 31, 2011, and 201208 for tax years ending August 2012.

Part III. Concise Description of UTPs

When to Complete Part III

Part III must be completed for every tax position listed in Part I or Part II. Enter the corresponding UTP number from Part I, column (a) (e.g., C1, C2, C3) or Part II, column (a) (e.g., P4, P5, P6), related to the description.

Concise description.   Provide a concise description of the tax position, including a description of the relevant facts affecting the tax treatment of the position and information that reasonably can be expected to apprise the IRS of the identity of the tax position and the nature of the issue. In most cases, the description should not exceed a few sentences. Stating that a concise description is “Available upon Request” is not an adequate description.

  A concise description should not include an assessment of the hazards of a tax position or an analysis of the support for or against the tax position.

Examples of Concise Descriptions for Hypothetical Fact Patterns

The following examples set out a description of hypothetical facts and the uncertainties about a tax position that would be reportable on Schedule UTP. Following each set of hypothetical facts, which would not be disclosed on the schedule, is an example of a sufficient concise description that would be reported in Part III to disclose that hypothetical case.

Example 12.    Allocation of costs between uncompleted and completed acquisitions.

Facts.

The corporation investigated and negotiated several potential business acquisitions during the tax year. One of the transactions was completed during the tax year, but all other negotiations failed and the other potential transactions were abandoned during the tax year. The corporation deducted costs of investigating and partially negotiating potential business acquisitions that were not completed and capitalized costs allocable to one business acquisition that was completed. The corporation established a reserve for financial accounting purposes in recognition of the possibility that the amount of costs allocated to the uncompleted acquisition attempts was excessive.

Sample concise description.

The corporation incurred costs of completing one business acquisition and also incurred costs investigating and partially negotiating potential business acquisitions that were not completed. The costs were allocated between the completed and uncompleted acquisitions. The issue is whether the allocation of costs between uncompleted acquisitions and the completed acquisition is appropriate.

Example 13.    Recharacterization of distribution as a sale.

Facts.

The corporation is a member of Venture LLC, which is treated as a U.S. partnership for tax purposes. During the tax year, Venture LLC raised funds through (i) admitting a new member for a cash contribution and (ii) borrowing funds from a financial institution, using a loan partially guaranteed by the corporation. Also during the tax year, Venture LLC made a cash distribution to the corporation that caused its membership interest in Venture LLC to be reduced from 25% to 2%. The corporation has taken the position that the cash distribution is properly characterized as a nontaxable distribution that does not exceed its basis in its Venture LLC interest, but has established a reserve for financial accounting purposes, recognizing that the transaction might be recharacterized as a taxable sale of a portion of its Venture LLC interest under section 707(a)(2).

Sample concise description.

The corporation is a member of Venture LLC, which is treated as a U.S. partnership for tax purposes. The corporation received a cash distribution during the year from Venture LLC. The issue is the potential application of section 707(a)(2) to recharacterize the distribution as a sale of a portion of the corporation's Venture LLC interest.


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