IRS updates Schedule UTP and instructions: PwC

In brief

The IRS on October 11 announced draft changes to Schedule UTP and Instructions for Schedule UTP for 2022 tax year returns to be filed and processed in 2023. Corporations must file Schedule UTP with their 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, if (1) their total assets equal or exceed the applicable asset threshold for the tax year ($10 million for 2022) and (2) they record a liability for unrecognized tax benefits for US federal income tax positions in their audited financial statements.

Changes to the Schedule UTP intended to improve the form’s usefulness include (1) new columns to identify guidance that is contrary to positions taken on the company’s tax return (for tax positions reported on Schedule UTP rather than Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement), and (2) a new field for the incremental dollar amount of the uncertain tax position taken in the 2022 tax year. The revised Schedule UTP instructions provide taxpayers new comprehensive examples on what the IRS deems to be adequate disclosure.

Action item: Taxpayers affected by these proposed changes to Schedule UTP may wish to submit to the IRS written comments on the draft schedule.

In detail

Changes to Schedule UTP

The draft Schedule UTP continues to require taxpayers to report for each of their UTPs:

Column (b) — the primary Internal Revenue Code sections associated with the tax position
Column (e) — whether the tax position was permanent, temporary, or both
Column (f) — the employer identification number of any pass-through entity involved
Column (g) — an indication of whether the position was a major tax position
Column (h) — the tax position’s ranking by size.

The draft Schedule UTP adds five columns requiring taxpayers to report for each of their UTPs:

Column (c) — any Revenue Procedure, Revenue Ruling, Private Letter Ruling, Technical Advice Memorandum, Notice, court decision, Chief Counsel Advice, Field Service Advice, or General Counsel Memorandum that is contrary to the tax position
Column (d) —any Treasury Regulation that is contrary to the tax position
Column (i) — the location of the tax position by form or schedule
Column (j) — the location of the tax position by line number
Column (k) — the incremental amount included on the line related to the tax position.

Changes to Schedule UTP instructions

The revised Schedule UTP instructions provide taxpayers with a new comprehensive example relating to reporting on amended returns and new comprehensive examples and guidance on what the IRS deems to be adequate disclosure in Part III, Concise Descriptions of UTPs, of the schedule.