In itself, the requirement to file Schedule UTP doesn't add significantly to the finance department's workload, says Ray Sadowski, senior vice president and chief financial officer with Phoenix-based ., a distributor of electronic components, such as connectors and semiconductors, with $19 billion annual revenue. "There's some additional burden, because now you have to fill out a form that you didn't before. But, it's not onerous."
UTP issues were listed by CFOs, however, as among this year's greatest tax policy concerns earlier this year.
Of course, as with many undertakings it's not until one's immersed in the process that the larger questions arise. "People filed, and did the best they could, but the form elicited a lot of questions," says John A. Eliason, a Dallas-based tax partner with the law firm of Gardere Wynne Sewell LLP. In March that addresses some of those questions.
Probably the most significant clarification will help taxpaying firms that were in a net-operating loss or credit carryforward position in the years leading up to the effective date of UTP reporting, and that also had an uncertain tax position embedded within the NOL or credit carryforward, says Ken Kuykendall, a Chicago-based partner and U.S. tax accounting services leader with accounting firm PwC.
Say a company had a tax loss in 2009 that it could carry forward to 2010, along with an uncertain tax position from 2009. The company utilized the NOL in 2010, at which point the IRS' requirement to disclose UTPs had kicked in. The initial instructions for Schedule UTP left some question as to whether the company also would have to report the 2009 UTP. With the FAQ, "the IRS clarified that it was only looking for UTPs created beginning in 2010," Kuykendall.
In its FAQ, the IRS also clarifies its policy of restraint. "In any discovery situation, anyone can go nuts and make life crazy," Eliason says. With its policy of restraint, the IRS is limiting the scope of information it will request from taxpayers.
In October 2010, that it was expanding the policy in connection with its decision to require some companies to file Schedule UTP. The announcement discussed documents the company had both discussed with its attorneys and tax advisors and also made available to its auditors. Normally, documents shared with a firm's attorneys or tax advisors are protected. However, sharing a document with an auditor normally means that it no longer is privileged. The IRS said it would "not assert during an examination that such privilege has been waived by such disclosure."
The IRS FAQ also says that this policy applies even if an examination reaches an appeals stage, says Wayne Corini, partner and regional tax business line leader with the accounting firm BDO. "It's an evolution in the policy of restraint."
While the FAQs are helpful, some questions regarding UTPs remain. One example: It's not yet clear whether companies will need to disclose uncertain tax positions that were recorded before 2010, but continue to produce an impact after 2010 in areas other than net operating losses, Kuykendall notes. This could occur if a company is uncertain about a recurring deduction, such as goodwill amortization. The instructions seem to indicate that it would need to report the UTP in each year after 2009 that a deduction is taken, regardless of when the actual goodwill arose.
Will the disclosure of UTPs make financial statements more useful? At this point, it's hard to say. "My starting premise is that transparency is good," Sadowski says. "But, too much transparency is not good," given that it can lead to voluminous 10K reports, in which important information gets lost in the details, he says.
And, as both companies and the IRS gain more experience with the forms, additional questions are likely, Eliason notes. As a result, more guidance probably is forthcoming. "I don't think this will the last one," he says.
There's an upside, however. If the guidance on UTPs issued so far can be considered a harbinger of what's to come, companies should come out all right, "The things that came out of the FAQs are largely helpful to taxpayers," Kuykendall says.