IRS Finalizes New Schedule UTP and UTP Instructions
On December 22, 2022, the Internal Revenue Service (IRS) finalized changes to Schedule UTP, Uncertain Tax Position Statement, and Instructions for Schedule UTP. Proposed changes to Schedule UTP and the UTP Instructions were announced on October 11, 2022, with comments requested by November 18, 2022. Our prior coverage of the proposed changes and comments can be found here and here.
Several comments were submitted in response to the proposed changes, expressing significant concerns regarding privilege issues, the increase in information required to be disclosed and uncertainty surrounding penalty protection. We submitted our own comments, which focused primarily on the IRS’s proposal to require taxpayers to identify all “contrary authorities” to a position identified on Schedule UTP, including nonprecedential and unpublished guidance.
The final Schedule UTP and UTP Instructions removed the requirement to identify nonprecedential and unpublished guidance. The UTP Instructions also modified the language regarding what is needed for the concise description of the issue to focus more on the facts involved. Finally, the IRS confirmed that the amount of any reserve need not be disclosed, but rather just the amount listed on the line to which the uncertain tax position relates. These are welcome developments for taxpayers and should alleviate some of the concerns expressed by commentators. However, the IRS has not indicated what impact these final changes will have on its “policy of restraint” to seek accrual work papers.
Practice Point: Corporate taxpayers with uncertain tax positions now have a final form and final instructions to use for their 2022 tax reporting. They should review the finalized changes and determine the best approach to ensure compliance with these changes.