Schedule UTP: The Early Returns Are In

IRS Deputy Commissioner Stephen Miller announced the results of the first Schedule UTP filings as part of his remarks to the Tax Executives Institute on March 26, 2012. The audience included corporate tax professionals from a wide variety of companies many of whom had to file a Schedule UTP with their 2010 return. The size of the companies included the largest taxpayers subject to LB&I scrutiny, those in the coordinated industry case (CIC) program as well as many industry case (IC) taxpayers.

1,900 total taxpayers filed a Schedule UTP with their 2010 return. IC taxpayers filed 79% of those tax returns. That is, companies large enough to be subject to the Schedule UTP filing requirement but not large enough to participate in LB&I’s CIC program. An estimated 53% of all schedule UTP returns filed included only one or zero uncertain tax positions. Returns filed by CIC taxpayers averaged 3.1 uncertain tax positions per schedule while returns filed by IC taxpayers averaged 1.9 positions.

Approximately 4,000 issues were disclosed and about 19% of all issues disclosed dealt with transfer pricing issues. The top three code sections involved were Internal Revenue Code section 41 (research credits), 482 (transfer pricing) and 162 (trade or business expenses).

Of the 4,000 concise descriptions reviewed, the overwhelming majority described the tax position and nature of the issue in a way that satisfied the IRS. However, the centralized review process determined that about 3% of taxpayers failed to satisfy the concise description requirement. The IRS issued “soft letters” to the taxpayers whose descriptions were deemed inadequate advising them of the need to comply with the instructions.

The IRS has stated that it will not require further action from taxpayers with regard to the 2010 Schedule UTP. However, the IRS also made it clear that the small number of taxpayers whose returns included inadequate concise descriptions will have their 2011 return reviewed.

Read the Deputy Commissioner’s comments here:
Remarks of Steven T. Miller, IRS Deputy Commissioner, Service and Enforcement, Before the Tax Executives Institute, Mid-Year Conference

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