Instructions For Schedule Utp Draft - Uncertain Tax Positions Statement

they do not file a consolidated tax return. Corporation C has taken 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 a consolidated financial statement in which Corporation C was included.

Reserve not recorded based on administrative practice. A tax position required to be reported on

Schedule UTP includes a tax position for which a reserve would have been recorded in the audited

financial statement but for a determination that, based upon past administrative practices and precedents

of the IRS in dealing with the tax position of the taxpayer or similar taxpayers, the IRS has a practice of

not challenging the tax position during an examination.

Reserve not recorded based on expectation to litigate. A tax position required to be reported on

Schedule UTP includes a tax position for which a reserve was not recorded in the audited financial

statement after the taxpayer or a related party determines that, if the IRS had full knowledge of the tax

position it is unlikely a settlement could be reached. For this purpose, a settlement is unlikely if the

probability of settlement is less than 50%.

Example 5 (expectation to litigate). A corporation takes a position that it can exclude certain income from

its 2010 tax return. On September 30, 2010, the corporation determines that, if the IRS had full

knowledge of the tax position, there is less than a 50% probability of settling the issue with the IRS. The

corporation also determines that, if the tax position were litigated, it has a 60% probability of prevailing in

the litigation. Based upon these determinations, the corporation did not record a reserve for the tax

position. Because the corporation made a decision not to record a reserve with respect to its 2010 tax

position based on a determination, consistent with applicable accounting standards, that it will litigate,

rather than settle, the issue with the IRS and that the corporation will prevail in the litigation, and because

that decision was made more than 60 days before filing its 2010 tax return, the corporation must report

this tax position on the Schedule UTP filed with its 2010 tax return.

Tax position taken in a tax return. A tax position taken in a tax return means a tax position that would

result in an adjustment to a line item on that tax return (or would be included in a section 481(a)

adjustment) if the position is not sustained.

Examples - All examples assume the corporation is a calendar year taxpayer

Example 6 (permanent differences). A corporation incurs an expenditure in its 2010 tax year and takes

the position that the expenditure may be amortized over 5 years beginning in its 2010 tax return. The

corporation determines it is uncertain whether any current deduction or amortization of this expenditure is

allowable. The corporation has taken a tax position in each of the 5 tax years because in 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.

Example 7 (temporary difference). A corporation incurs an expenditure in its 2010 tax year and claims a

deduction for the entire amount on its 2010 tax return. The corporation determines it is uncertain whether

the deduction is allowable in the 2010 tax year or the amount instead is amortizable over 5 years. The

corporation has taken a tax position in each of the 5 years, even though it claimed a deduction in a single

year, because in 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.

Example 8 (use of expiring net operating loss carryforward). A corporation has a $100 net operating loss

carryforward that will expire unless it is used in the 2010 tax year. The corporation reports $100 of

income in 2010 but is uncertain whether the income should be reported in 2010 or 2011. The corporation

has taken a tax position in each of its 2010 and 2011 tax returns because in each return there would be

an adjustment to a line item on that return if the position taken in that year is not sustained.

Instructions For Schedule Utp Draft - Uncertain Tax Positions Statement - 2010 Page 4

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