Schedule UTP - Why So Few Disclosures?
J. Richard (Dick) Harvey
Villanova University School of Law and Graduate Tax Program
March 1, 2013
Tax Notes, April 1, 2013
Villanova Law/Public Policy Research Paper No. 2013-3014
The IRS has published statistics indicating the average corporate taxpayer disclosed 2 to 3 uncertain tax positions per Schedule UTP. As one of the architects of Schedule UTP, I was expecting more UTP disclosures per return. This article explores potential explanations for this “expectation gap” ranging from those that are positive, to those that are relatively benign, to those that should clearly result in IRS action.
Positive explanations include corporate taxpayers no longer taking aggressive tax positions because of the Schedule UTP disclosure requirement. Benign explanations include taxpayers no longer recording truly immaterial reserves. Explanations that should result in IRS action include corporations:
• Recording a tax reserve but arguing no disclosure is necessary because the reserve is not “required”;
• Failing to record a relatively material tax reserve that is then posted to an auditor's net effects schedule; and
• Failing to record a tax reserve by constructing a FIN 48 probability distribution table with only a 50 percent probability of litigation.
Finally, the IRS should consider imposing a penalty for not adequately filing Schedule UTP. Although a penalty could be obtained through legislation, the IRS could also effectively institute a penalty based on one of the carrot and stick approaches described in this article.
Number of Pages in PDF File: 6
Keywords: Schedule UTP, Transparency, Corporate Disclosures, Corporate Tax Gap, FIN 48
Date posted: March 28, 2013 ; Last revised: April 26, 2013