General Instructions

Purpose of Schedule

Schedule UTP asks for information about tax positions that affect the U.S. federal income tax liabilities of certain corporations that issue or are included in audited financial statements and have assets that equal or exceed $10 million.

Reporting Uncertain Tax Positions on Schedule UTP

Tax positions to be reported.   Schedule UTP requires the reporting of each U.S. federal income tax position taken by an applicable corporation on its U.S. federal income tax return for which two conditions are satisfied.
  1. The corporation has taken a tax position on its U.S. federal income tax return for the current tax year or for a prior tax year.

  2. Either the corporation or a related party has recorded a reserve with respect to that tax position for U.S. federal income tax in audited financial statements, or the corporation or related party did not record a reserve for that tax position because the corporation expects to litigate the position.

  A tax position for which a reserve was recorded (or for which no reserve was recorded because of an expectation to litigate) must be reported regardless of whether the audited financial statements are prepared based on U.S. generally accepted accounting principles (GAAP), International Financial Reporting Standards (IFRS), or other country-specific accounting standards, including a modified version of any of the above (for example, modified GAAP).

  If the corporation reconsiders whether a reserve is required for a tax position and eliminates the reserve in an interim audited financial statement issued before the tax position is taken in a return, the corporation need not report the tax position to which the reserve relates on Schedule UTP.

  A tax position is based on the unit of account used to prepare the audited financial statements in which the reserve is recorded (or in which no reserve was recorded because of an expectation to litigate). A tax position taken on a tax return is a tax position that would result in an adjustment to a line item on that tax return if the position is not sustained. If multiple tax positions affect a single line item on a tax return, report each tax position separately on Schedule UTP. See Tax position taken on a tax return, later.

Reporting current year and prior year tax positions.    Tax positions taken by the corporation on the current year’s tax return are reported in Part I. Tax positions taken by the corporation on a prior year’s tax return are reported on Part II. A corporation is not required to report a tax position it has taken in a prior tax year if the corporation reported that tax position on a Schedule UTP filed with a prior year tax return. If a transaction results in tax positions taken on more than one tax return, the tax positions must be reported in Part I of the Schedule UTP attached to each tax return in which a tax position is taken regardless of whether the transaction or a tax position resulting from the transaction was disclosed in a Schedule UTP filed with a prior year’s tax return. See Example 7 and Example 8. Do not report a tax position on Schedule UTP before the tax year in which the tax position is taken on a tax return by the corporation.

   If, after a subsidiary member leaves a consolidated group, the subsidiary, or a related party of the subsidiary, records a reserve in an audited financial statement with respect to one of the subsidiary’s tax positions in its former group’s prior return, the subsidiary should report the tax position on Part II of the Schedule UTP filed with its current tax return, if it files a separate return. If the subsidiary is included in the return of another consolidated group that is required to file Schedule UTP, the common parent of that consolidated group should report the tax position on Part II of the Schedule UTP filed with its current tax return.

Concise description of tax position.   A corporation that reports a tax position in either Part I or Part II is required to provide a concise description of each tax position in Part III. See Examples 12 and 13.

Consistency with financial statement reporting.   The analysis of whether a reserve has been recorded for the purpose of completing Schedule UTP is determined by reference to those reserve decisions made by the corporation or a related party for audited financial statement purposes. If the corporation or a related party determined that, under applicable accounting standards, either no reserve was required for a tax position taken on a tax return because the amount was immaterial for audited financial statement purposes, or that a tax position was sufficiently certain so that no reserve was required, then the corporation need not report the tax position on Schedule UTP. For a corporation subject to FIN 48, a tax position is considered “sufficiently certain so that no reserve was required,” and therefore need not be reported on Schedule UTP, if the position is “highly certain” within the meaning of FIN 48.

Transition rule.   A corporation is not required to report on Schedule UTP a tax position taken in a tax year beginning before January 1, 2010, even if a reserve is recorded with respect to that tax position in audited financial statements issued in 2010 or later. See Example 9. In addition, a corporation is not required to report accruals of interest on a tax reserve recorded with respect to a tax position taken on a pre-2010 tax return.

Periods covered.   File a 2014 Schedule UTP with the 2014 income tax return for the calendar year 2014 and for a fiscal year that begins in 2014.

Who Must File

A corporation must file Schedule UTP with its 2014 income tax return if:

  1. The corporation files Form 1120, U.S. Corporation Income Tax Return; Form 1120-F, U.S. Income Tax Return of a Foreign Corporation; Form 1120-L, U.S. Life Insurance Company Income Tax Return; or Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;

  2. The corporation has assets that equal or exceed $10 million;

  3. The corporation or a related party issued audited financial statements reporting all or a portion of the corporation’s operations for all or a portion of the corporation’s tax year; and

  4. The corporation has one or more tax positions that must be reported on Schedule UTP.

    Do not file a blank Schedule UTP if there are no tax positions to be reported.

Attach Schedule UTP to the corporation's income tax return. Do not file it separately. A taxpayer that files a protective Form 1120, 1120-F, 1120-L, or 1120-PC must also file Schedule UTP if it satisfies the four requirements set forth above.

A corporation required to file Schedule UTP also must check “Yes” to Form 1120, Schedule K, Question 14; Form 1120-F, Additional Information, Question AA; Form 1120-L, Schedule M, Question 15; or Form 1120-PC, Schedule I, Question 13.

Five-year phase-in period.   Corporations meeting all other Schedule UTP filing requirements must file a Schedule UTP if total assets equal or exceed the applicable asset threshold for the tax year, as follows:
Tax Year Assets Threshold
2010, 2011 $100 million
2012, 2013 $50 million
2014 and after $10 million

Computation of assets that equal or exceed $10 million.   For the following corporate income tax returns:

Forms 1120, 1120-L, and 1120-PC.

A corporation’s assets equal or exceed $10 million if the amount reported on page 1, item D of Form 1120, or the higher of the beginning or end of year total assets reported on Schedule L of Form 1120-L or Form 1120-PC, is at least $10 million.

Form 1120-F.

The assets of a corporation filing a Form 1120-F equal or exceed $10 million if the higher of the beginning or end of year total worldwide assets of the corporation reported on Form 1120-F, Schedule L, Line 17, would be at least $10 million if the corporation were to prepare a Schedule L on a worldwide basis.

Affiliated groups.   An affiliated group of corporations filing a consolidated return will file one Schedule UTP for the affiliated group. The affiliated group need not identify the member of the group to which the tax position relates or which member recorded the reserve for the tax position. Any affiliate that files its U.S. federal income tax return separately and satisfies the requirements set forth above must file a Schedule UTP with its return setting forth its own tax positions.

Definitions and Special Rules

Note.

All examples in these instructions assume the calendar year is the reporting year both for U.S. federal income tax and financial statement purposes and the independent auditor’s opinion on the audited financial statements is issued before the filing of the tax return.

Audited financial statements.   Audited financial statements mean financial statements on which an independent auditor has expressed an opinion, whether qualified, unqualified, disclaimed, or adverse, under GAAP, IFRS, or another country-specific accounting standard, including a modified version of any of the above (for example, modified GAAP). Compiled or reviewed financial statements are not audited financial statements.

Record a reserve.   A corporation or a related party records a reserve for a U.S. federal income tax position when a reserve for U.S. federal income tax, interest, or penalties with respect to that position is recorded in audited financial statements of the corporation or a related party. A reserve is recorded when an uncertain tax position or a FIN 48 liability is stated anywhere in a corporation’s or related party’s financial statements, including footnotes and any other disclosures, and may be indicated by any of several types of accounting journal entries. Some of the types of entries that, entered alone or in tandem, indicate the recording of a reserve are: (1) an increase in a current or non-current liability for income taxes, interest or penalties payable, or a reduction of a current or non-current receivable for income taxes and/or interest with respect to the tax position; or (2) a reduction in a deferred tax asset or an increase in a deferred tax liability with respect to the tax position.

  The initial recording of a reserve will trigger reporting of a tax position taken on a return. However, subsequent reserve increases or decreases with respect to the tax position will not.

  If a corporation is included in multiple audited financial statements, the corporation must report a tax position on Schedule UTP if a reserve for that position was recorded in any of those audited financial statements.

Example 1. General rule regarding recording a reserve.

A corporation recorded a reserve in its 2012 audited financial statements relating to a tax position taken on its tax return for the 2012 tax year. The corporation filed its 2012 tax return on September 15, 2013. The corporation reported the 2012 tax position on Part I of Schedule UTP and filed Schedule UTP with its 2012 tax return. If the corporation increases its reserve with respect to the tax position taken on its 2012 tax return in its 2014 audited financial statements, the corporation is not required to report the 2012 tax position again on its 2014 tax return as a result of the reserve increase in 2014.

  

Example 2. Reporting reserves in subsequent years.

A corporation claimed a deduction in 2012 and determined under applicable accounting standards that it could recognize the full benefit of the position. In 2014 the IRS began an examination of the 2012 tax return and decided to examine whether the deduction was proper. The corporation subsequently reevaluated the tax position and recorded a reserve for that position in 2014. The corporation has taken a tax position in its 2012 tax return and recorded a reserve with respect to that tax position. The corporation must report the tax position on Schedule UTP filed with its 2014 tax return even if the IRS identifies the tax position for examination prior to the recording of the reserve.

Related party.   A related party is any entity that has a relationship to the corporation that is described in sections 267(b), 318(a), or 707(b), or any entity that is included in consolidated audited financial statements in which the corporation is also included.

Example 3. Related party general rule.

Corporation A is a corporation filing Form 1120 that has $160 million of assets. Corporation B is a foreign corporation not doing business in the United States and is a related party to Corporation A. Corporations A and B issue their own audited financial statements. Corporation A takes a tax position on its tax return. If Corporation B records a reserve with respect to that tax position in its own audited financial statements, even though Corporation A does not, then that tax position must be reported by Corporation A on its Schedule UTP.

Example 4. Reserve recorded in consolidated financial statements.

Corporation C files a tax return and has assets of $160 million. Corporations C and D issue consolidated audited financial statements, but they do not file a consolidated tax return. Corporation C takes a tax position for which a reserve was recorded in the consolidated financial statements of Corporations C and D. The tax position taken by Corporation C on its tax return must be reported on its Schedule UTP because a reserve was recorded for its tax position in consolidated financial statements in which Corporation C was included.

Reserve not recorded based on expectation to litigate.   A corporation must report on Schedule UTP a tax position taken on its return for which no reserve for income tax was recorded if the tax position is one which the corporation or a related party determines the probability of settling with the IRS to be less than 50% and, under applicable accounting standards, no reserve was recorded in the audited financial statements because the corporation intends to litigate the tax position and has determined that it is more likely than not to prevail on the merits in the litigation.

  

Example 5. Reserve not recorded after a change in circumstances based on expectation to litigate.

A corporation takes a tax position on its 2012 tax return for which no reserve is recorded because the corporation determines the tax position is correct. Circumstances change, and in 2014 the corporation determines that the tax position is uncertain, but does not record a reserve because of its expectation to litigate the position. That is, the corporation or a related party determines the probability of settling with the IRS to be less than 50% and, under applicable accounting standards, no reserve was recorded because the corporation intends to litigate the tax position and has determined that it is more likely than not to prevail on the merits in the litigation. The corporation must report that position on Part II of the Schedule UTP filed with the 2014 tax return either if it records a reserve or if it does not record a reserve because it expects to litigate, even if that decision to record or not record occurs because of a change in circumstances in a later year.

Tax position taken on a tax return.   A tax position taken on a tax return means a tax position that would result in an adjustment to a line item on any schedule or form attached to the tax return (or would be included in a section 481(a) adjustment) if the position is not sustained. If multiple tax positions affect a single line item on a tax return, each tax position is a separate tax position taken on a tax return. For example, a tax position that is reported on a line item on Form 5471 is a tax position taken on a return, even though an adjustment to that line item might not result in the payment of any additional tax.

  A single decision about how to report an item of income, gain, loss, deduction, or credit may affect line items in multiple years’ returns. If so, that decision can result in a tax position taken on each affected year’s return. For example, a decision to amortize an expense rather than currently deduct that expense, or a decision to currently deduct rather than amortize an expense, affects line items on each year’s return in which the tax position is taken during the period of amortization. Whether these tax positions taken on a return are reported on Schedule UTP for a particular tax year, and when they are reported, depends on whether and when a reserve is recorded. See Example 7 and Example 8.

Note.

Although the use of an NOL or a credit carryforward is a tax position taken on a tax return, do not report the use of the NOL or credit carryforward if the corporation has previously reported the tax position that created or added to the NOL or credit carryforward on Schedule UTP. See Example 10.

Unit of account.   A unit of account is the level of detail used in analyzing a tax position, taking into account both the level at which the taxpayer prepares and supports the tax return and the level at which the taxpayer anticipates addressing the issue with the IRS. The unit of account used by a GAAP or modified GAAP taxpayer for reporting a tax position on Schedule UTP must be the same unit of account used by the taxpayer for GAAP or modified GAAP.

  In the case of audited financial statements prepared under accounting standards other than GAAP or modified GAAP, a corporation that issues audited financial statements with a unit of account that is based upon the entire tax year may not use that unit of account for Schedule UTP. The corporation must instead identify a unit of account based on similar principles applicable to GAAP or modified GAAP taxpayers, or use any other level of detail that is consistently applied if that identification is reasonably expected to apprise the IRS of the identity and nature of the issue underlying the tax position taken on the tax return.

Example 6. Unit of account.

Corporation A and Corporation B each have two individual research projects and each anticipates claiming a research and development credit arising out of their projects. Corporation A chooses each individual research project as the unit of account for GAAP financial reporting purposes, since the corporation accumulates information for the tax return about the projects at the project level and expects the IRS to address the issues during an examination of each project separately. Corporation B determines that the appropriate unit of account for GAAP financial reporting purposes is the functional expenditures, based on the amount of its expenditures, the anticipated credits to be claimed, its previous experience, and the advice of its tax advisors. Based on the unit of account used for financial reporting purposes, Corporation A must use each project as its unit of account for Schedule UTP reporting, and Corporation B must use functional expenditures as its unit of account for Schedule UTP reporting, regarding the research and development credit.

Ranking Tax Positions by Size

The corporation must rank by size each tax position listed in Part I. The size of a tax position, however, need not be reported anywhere on Schedule UTP. See the instructions for Part I, column (f), regarding coding to be used to rank the corporation’s tax positions.

Size.   The size of each tax position is determined on an annual basis and is the amount of U.S. federal income tax reserve recorded for that position. If a reserve is recorded for multiple tax positions, then a reasonable allocation of that reserve among the tax positions to which it relates must be made in determining the size of each tax position.

  If an amount of interest or penalties relating to a tax position is not separately identified in the books and records as associated with that position, then that amount of interest and penalties is not included in the size of a tax position used to rank that position or compute whether the position is a major tax position.

Expectation to litigate.   Do not determine a size for positions listed because of an expectation to litigate. See the instructions for Parts I and II, column (f), regarding ranking of these positions.

Affiliated groups.   The determination of the size of a tax position taken in a tax return by an affiliated group filing a consolidated return is to be determined at the affiliated group level for all members of the affiliated group.

Coordination with Other Reporting Requirements

A complete and accurate disclosure of a tax position on the appropriate year’s Schedule UTP will be treated as if the corporation filed a Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, regarding the tax position. A separate Form 8275 or Form 8275-R need not be filed to avoid certain accuracy-related penalties with respect to that tax position.

Comprehensive Examples

Example 7. Multiple year positions.

A corporation incurred an expenditure in 2011 and claimed the entire amount as a deduction on its 2011 return. During the course of reviewing its tax positions for purposes of establishing reserves for U.S. federal income taxes for its 2011 audited financial statements, the corporation determines it is uncertain whether the expenditure should instead be amortized over 5 years and records a reserve with respect to the position taken in 2011. The corporation did not record a reserve for any of the positions taken in tax years 2012 through 2015. The corporation has taken a tax position in each of the 5 tax years because, on each year’s tax return, there would be an adjustment to a line item on that return if the position taken in that year’s return is not sustained. The tax position taken in the 2011 tax year must be reported on Part I of Schedule UTP filed with the 2011 tax return. None of the 2012 to 2015 tax positions must be reported on Schedule UTP because the corporation did not record a reserve with respect to any of those tax positions.

Example 8. Multiple year positions.

A corporation incurred an expenditure in 2011 and takes the position that the expenditure may be amortized over 5 years beginning on its 2011 tax return. During the course of reviewing its tax positions for purposes of establishing reserves for U.S. federal income taxes for its 2011 audited financial statements, the corporation determines it is uncertain whether any deduction or amortization of this expenditure is allowable. In the 2011 audited financial statements, the corporation recorded a reserve with respect to the amortization deduction to be claimed in each tax year. The corporation has taken a tax position in each of the 5 tax years because on each year’s tax return there would be an adjustment to a line item on that return if the position taken in that year is not sustained. The corporation must report the 2011 tax position on Part I of Schedule UTP for the 2011 tax year. In addition, the tax position to be taken in each of the 2012 to 2015 tax years must be reported on Part I of the Schedule UTP filed with the tax return for the respective tax year in which the tax position was taken. The result would be the same if, instead of recording the reserve in 2011 for all of the tax positions taken in each of the 5 years, the corporation records a reserve in each year that specifically relates to the tax position taken on the return for that year.

Example 9. Transition rule.

The facts are the same as in Example 8, except that the corporation incurred the expenditure and recorded the reserve in 2009. The corporation has taken a tax position in each of the 5 tax years (2009 through 2013) because on each year’s tax return there would be an adjustment to a line item on that return if the position taken in that year is not sustained. However, the corporation was not required to report the tax position taken in the 2009 tax year because it was taken in a tax year beginning before January 1, 2010. The tax position taken in each of the 2010 to 2013 tax years must be reported on Part I of the Schedule UTP filed with the tax return for the respective tax year in which the position was taken.

Example 10. Creation and use of net operating loss (NOL).

A corporation incurred a $50 expenditure in 2013 and claimed the entire amount as a deduction on its 2013 tax return. The deduction increases the corporation’s NOL carryforward from $100 to $150. The corporation uses the entire $150 NOL carryforward on its 2014 tax return. Claiming the $50 deduction in 2013 is a tax position taken in the 2013 tax year because the position would result in an adjustment to a line item on the 2013 tax return if the position is not sustained. The deduction in 2014 of the NOL carried forward from 2013 is a tax position taken on the 2014 tax return, because the position would result in an adjustment to a line item on the 2014 tax return if the position is not sustained. The corporation recorded a reserve with respect to its 2013 tax position, in its 2013 audited financial statements. Because the corporation recorded a reserve with respect to the tax position taken in 2013, it reported the 2013 tax position on the Schedule UTP filed with its 2013 tax return. Because it reported the tax position in its 2013 tax return, the corporation should not report the 2014 tax position on the Schedule UTP filed with its tax return for the 2014 tax year.

Example 11. Corporate merger.

On June 30, 2014, MergerCo merges into AcquiringCo, in a transaction in which AcquiringCo survives. MergerCo’s tax year ends on that date. After the merger, AcquiringCo records a reserve with respect to a tax position that is taken on MergerCo’s final return in its audited financial statements. That tax position must be reported on Part I of the Schedule UTP filed with MergerCo’s 2014 tax return even though the reserve was recorded by AcquiringCo. AcquiringCo should not report the tax position on the Schedule UTP filed with its 2014 tax return because MergerCo’s final return is a prior year tax return on which the tax position was reported.


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