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IRS releases statistics on taxpayers filing uncertain tax positions

February 6, 2014
IRS has released statistics on taxpayers filing uncertain tax positions (UTPs) for the 2012 tax year.Certain corporate taxpayers must file Schedule UTP (Uncertain Tax Position Statement) and provide IRS with information about tax positions that affect their U.S. federal income tax liabilities if they have assets equal to or exceeding $50 million (for 2012) and they issue or are included in audited financial statements.

Background.Schedule UTP requires certain corporations to report each U.S. federal income tax position taken on their return for which two conditions are satisfied: (1) the corporation took a tax position on its federal income tax return for the current or prior year; and (2) the corporation or a related party has (a) recorded a reserve for that position for federal income tax in audited financial statements, or (b) did not record a reserve for that position because the corporation expects to litigate the position.Tax positions taken in years before 2010 need not be reported in 2010 or a later year, even if a reserve is recorded in audited financial statements issued in 2010 or later.

Taxpayers must provide a concise description of a reported tax position on Schedule UTP, including a description of the relevant facts affecting the tax treatment of the position and information that reasonably can be expected to apprise IRS of the identity of the tax position and the nature of the issue.The description should not exceed a few sentences.A corporation need not include an assessment of the hazards of a tax position or an analysis of the support for or against the tax position.

Public or privately held corporations that issue or are included in audited financial statements and that file a Form 1120, Form 1120-F, Form 1120-L, or Form 1120-PC, must report their uncertain tax positions on Schedule UTP if they satisfy the total asset threshold.Under a five-year phase-in that started with the 2010 tax year, corporations that had total assets equal to or exceeding $100 million were required to file Schedule UTP.The total asset threshold was reduced to $50 million starting with 2012 tax years and to $10 million starting with 2014 tax years.

UTP statistics.On its website (http://www.irs.gov/Businesses/Corporations/UTPFilingStatistics), IRS has released statistics on UTP filings by taxpayers for the 2012 tax year.It also includes statistics on UTP filings for taxpayers for the 2010 and 2011 tax years.For the 2012 tax year, the top three Code sections reported by UTP filers were Code Sec. 41 (research tax credit), Code Sec. 482 (allocation of income and deductions among taxpayers, or transfer pricing), and Code Sec. 263 (capitalization); however, analysis of UTP filers’ concise descriptions revealed that the third highest primary Code section was actually Code Sec. 162 (trade or business expenses).These were also the top three Code sections reported by UTP filers for the 2011 tax year.On the 2012 tax returns, transfer pricing and research credits comprised 41% of all disclosed UTPs (down from 46% for 2011).

The statistics show that:

  • 1,743 taxpayers filed Schedule UTP for the 2012 tax year (down from 2,190 for 2011; but IRS had noted last year that the total returns filed and number of issues disclosed would increase as late-year filers and other returns are filed, and it released updated statistics later in the year reflecting same).
  • The percentage of repeat filers who had filed Schedule UTP in multiple years was 55% for the 2012 tax year (down from 77% for 2011).
  • The percentage of UTP filers that are publicly traded was 55% for the 2012 tax year (down from 56% for 2011).
  • 4,166 tax positions have been disclosed on Schedule UTPs for the 2012 tax year (down from 5,980 for 2011).
  • 42% of all Schedule UTP returns filed included only one UTP (up from 41% for the 2011 tax year).
  • The average number of UTPs per taxpayer for the 2012 tax year was 2.4 (down from 2.6 for 2011).

References:For reporting uncertain tax positions, see FTC 2d/FIN ¶ S-4462 ; United States Tax Reporter ¶ 60,124.03 ; TaxDesk ¶ 816,030 ; TG ¶ 5809 .