Instructions for Schedule UTP (Form 1120) - Introductory Material Future Developments General Instructions Purpose of Schedule Reporting Uncertain Tax Positions on Schedule UTP Tax positions to be reported. Reporting current year and prior year tax positions. Concise description of tax position. Consistency with financial statement reporting. Transition rule. Periods covered. Who Must File Computation of assets that equal or exceed $10 million. Forms 1120, 1120-L, and 1120-PC. Form 1120-F. Affiliated groups. Definitions and Special Rules Audited financial statements. Record a liability for unrecognized tax benefits. Related party. Tax benefit recognized based on expectation to litigate. Tax position taken on a tax return. Unit of account. Ranking Tax Positions by Size Size. Expectation to litigate. Affiliated groups. Coordination With Other Reporting Requirements Amended Returns Comprehensive Examples Specific Instructions Part I. Uncertain Tax Positions for the Current Tax Year When To Complete Part I Information From Related Parties Column (a). UTP No. Column (b). Primary IRC Sections Column (c). Rev. Rul. (RR), Rev. Proc. (RP), etc. Column (d). Regulation Section Column (e). Timing Codes Column (f). Pass-Through Entity EIN Column (g). Major Tax Position (Item or Groups of Items) Column (h). Ranking of Tax Position Columns (i) Through (k) Instructions for Schedule UTP (Form 1120) - Notices Part II. Uncertain Tax Positions for Prior Tax Years When To Complete Part II Information From Related Parties Column (a). UTP No. Column (b). Primary IRC Sections Column (c). Rev. Rule, Rev. Proc., etc. Column (d). Regulation Section Column (e). Timing Codes Column (f). Pass-Through Entity EIN Column (g). Major Tax Position Column (h). Ranking of Tax Position Columns (i) Through (k) Column (l). Year of Tax Position Part III. Concise Description of UTPs When To Complete Part III Concise description. Examples of Concise Descriptions for Hypothetical Fact Patterns Example 13. Facts. Insufficient disclosure. Sufficient concise description. Example 14. Facts. Insufficient disclosure. Sufficient concise description. Example 15. Facts. Insufficient disclosure. Sufficient concise description. Example 16. Facts. Insufficient disclosure Sufficient concise description. Instructions for Schedule UTP (Form 1120) (12/2022) Uncertain Tax Position Statement Section references are to the Internal Revenue Code unless otherwise noted. Revised: 12/2022 Instructions for Schedule UTP (Form 1120) - Introductory Material Future Developments For the latest information about developments related to Schedule UTP (Form 1120) and its instructions, such as legislation enacted after they were published, go toIRS.gov/ScheduleUTP. General Instructions Purpose of Schedule Schedule UTP asks for information about tax positions that affect the U.S. federal income tax liabilities of certain corporations that issue or are included in audited financial statements and have assets that equal or exceed $10 million. Reporting Uncertain Tax Positions on Schedule UTP Tax positions to be reported. Schedule UTP requires the reporting of each U.S. federal income tax position taken by an applicable corporation on its U.S. federal income tax return for which two conditions are satisfied. The corporation has taken a tax position on its U.S. federal income tax return for the current tax year or for a prior tax year. Either the corporation or a related party has recorded a liability for unrecognized tax benefits with respect to that tax position for U.S. federal income tax in audited financial statements, or the corporation or related party recognized the tax benefit for that tax position because the corporation expects to litigate the position. A tax position for which a liability for unrecognized tax benefits was recorded (or for which a tax benefit was recognized because of an expectation to litigate) must be reported on Schedule UTP regardless of whether the audited financial statements are prepared based on U.S. generally accepted accounting principles (GAAP), International Financial Reporting Standards (IFRS), or other country-specific accounting standards, including a modified version of any of the above (for example, modified GAAP). If the corporation evaluates a tax position and determines that it meets the recognition threshold for uncertain tax benefits in an interim audited financial statement issued before the tax position is taken on a return, the corporation need not report the tax position to which the tax benefit relates on Schedule UTP. A tax position is based on the unit of account used to prepare the audited financial statements in which the liability for an unrecognized tax benefit is recorded (or in which the tax benefit was recognized because of an expectation to litigate). A tax position taken on a tax return is a tax position that would result in an adjustment to a line item on that tax return if the position is not sustained. If multiple tax positions affect a single line item on a tax return, report each tax position separately on Schedule UTP. See Tax position taken on a tax return, later. Reporting current year and prior year tax positions. Tax positions taken by the corporation on the current year’s tax return are reported in Part I. Tax positions taken by the corporation on a prior year’s tax return are reported on Part II. A corporation is not required to report a tax position it has taken in a prior tax year if the corporation reported that tax position on a Schedule UTP filed with a prior year tax return. If a transaction results in tax positions taken on more than one tax return, the tax positions must be reported on Part I of the Schedule UTP attached to each tax return in which a tax position is taken regardless of whether the transaction or a tax position resulting from the transaction was disclosed in a Schedule UTP filed with a prior year’s tax return. See Example 7 and Example 8 , later. Do not report a tax position on Schedule UTP before the tax year in which the tax position is taken on a tax return by the corporation. If, after a subsidiary member leaves a consolidated group, the subsidiary, or a related party of the subsidiary, records a liability for unrecognized tax benefits in an audited financial statement with respect to one of the subsidiary’s tax positions in its former group’s prior return, the subsidiary should report the tax position on Part II of the Schedule UTP filed with its current tax return, if it files a separate return. If the subsidiary is included in the return of another consolidated group that is required to file Schedule UTP, the common parent of that consolidated group should report the tax position on Part II of the Schedule UTP filed with the group’s current tax return. Concise description of tax position. A corporation that reports a tax position in either Part I or Part II is required to provide a description of each tax position in Part III. See Examples 13 through 16, later. Consistency with financial statement reporting. The analysis of whether a liability for unrecognized tax benefits has been recorded for the purpose of completing Schedule UTP is determined by reference to the tax benefit recognition decisions made by the corporation or a related party for audited financial statement purposes. If the corporation or a related party determined that, under applicable accounting standards, either the tax benefit could be recognized for a tax position taken on a tax return because the amount was immaterial for audited financial statement purposes, or that a tax position satisfied the recognition and measurement process under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 740-10, then the corporation need not report the tax position on Schedule UTP. For a corporation subject to FASB ASC 740-10, a tax position is recognized, and therefore need not be reported on Schedule UTP, if it meets the recognition and measurement process for evaluating tax positions in the corporation's financial statements. Transition rule. A corporation is not required to report on Schedule UTP a tax position taken in a tax year beginning before January 1, 2010, even if a liability for unrecognized tax benefits is recorded with respect to that tax position in audited financial statements issued in 2010 or later. See Example 9 , later. In addition, a corporation is not required to report accruals of interest and penalties on an unrecognized tax benefit recorded with respect to a tax position taken on a pre-2010 tax return. Periods covered. File Schedule UTP with the corporation’s current year's tax return. Who Must File A corporation must file Schedule UTP for the current tax year if: The corporation files 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; The corporation has assets that equal or exceed $10 million; The corporation or a related party issued audited financial statements reporting all or a portion of the corporation’s operations for all or a portion of the corporation’s tax year; and The corporation has one or more tax positions that must be reported on Schedule UTP. Do not file a blank Schedule UTP if there are no tax positions to be reported. Attach Schedule UTP to the corporation's income tax return. Do not file it separately. A taxpayer that files a protective Form 1120, 1120-F, 1120-L, or 1120-PC must also file Schedule UTP if it satisfies the four requirements set forth above. A corporation required to file Schedule UTP must also check “Yes” to Form 1120, Schedule K, Question 14; Form 1120-F, Additional Information, Question AA; Form 1120-L, Schedule M, Question 15; or Form 1120-PC, Schedule I, Question 13. Computation of assets that equal or exceed $10 million. For the following corporate income tax returns: Forms 1120, 1120-L, and 1120-PC. A corporation’s assets equal or exceed $10 million if the amount reported on page 1, item D of Form 1120, or the higher of the beginning or end of year total assets reported on Schedule L of Form 1120-L or Form 1120-PC, is at least $10 million. Form 1120-F. The assets of a corporation filing a Form 1120-F equal or exceed $10 million if the higher of the beginning or end of year total worldwide assets of the corporation reported on Form 1120-F, Schedule L, line 17, would be at least $10 million if the corporation were to prepare a Schedule L on a worldwide basis. Affiliated groups. An affiliated group of corporations filing a consolidated return will file one Schedule UTP for the affiliated group. The affiliated group need not identify the member of the group to which the tax position relates, or which member recorded the liability for unrecognized tax benefits for the tax position. Any affiliate that files its U.S. federal income tax return separately and satisfies the requirements set forth above must file a Schedule UTP with its return setting forth its own tax positions. Definitions and Special Rules Note. All examples in these instructions assume the calendar year is the reporting year both for U.S. federal income tax and financial statement purposes and the independent auditor’s opinion on the audited financial statements is issued before the filing of the tax return. Audited financial statements. Audited financial statements mean financial statements on which an independent auditor has expressed an opinion, whether qualified, unqualified, disclaimed, or adverse, under GAAP, IFRS, or another country-specific accounting standard, including a modified version of any of the above (for example, modified GAAP). Compiled or reviewed financial statements are not audited financial statements. Record a liability for unrecognized tax benefits. A corporation or a related party records a liability for unrecognized tax benefits for a U.S. federal income tax position when a liability for unrecognized tax benefits for U.S. federal income tax, interest, or penalties with respect to that position is recorded in the audited financial statements of the corporation or a related party. A liability for an unrecognized tax benefit is recorded when an uncertain tax position or ASC 740-10 liability is stated anywhere in a corporation’s or related party’s financial statements, including footnotes and any other disclosures, and may be indicated by any of several types of accounting journal entries. Some of the types of entries that, entered alone or in tandem, indicate the recording of a liability for unrecognized tax benefits are (1) an increase in a current or non-current liability for income taxes, interest or penalties payable, or a reduction of a current or non-current receivable for income taxes and/or interest with respect to the tax position; or (2) a reduction in a deferred tax asset or an increase in a deferred tax liability with respect to the tax position. Liabilities for unrecognized tax benefits are created when a tax position taken on a return does not satisfy the recognition and measurement process for evaluating tax benefits on the financial statements under ASC 740-10. A tax position that is not “more likely than not” to be sustained based on its technical merits, or a tax position that is more likely than not to be sustained but less than 50 percent likely of being realized upon ultimate settlement, is recorded as a liability for unrecognized tax benefits under ASC 740-10. The initial recording of a liability for unrecognized tax benefits will trigger reporting of a tax position taken on a return. However, subsequent unrecognized tax benefit increases or decreases with respect to the tax position will not. If a corporation is included in multiple audited financial statements, the corporation must report a tax position on Schedule UTP if a liability for unrecognized tax benefits for that position was recorded in any of those audited financial statements. Example 1. General rule regarding recording a liability for unrecognized tax benefits. A corporation recorded a liability for unrecognized tax benefits in its 2020 audited financial statements relating to a tax position taken on its tax return for the 2020 tax year. The corporation filed its 2020 tax return on October 15, 2021. The corporation reported the 2020 tax position on Part I of Schedule UTP and filed Schedule UTP with its 2020 tax return. If the corporation increases its liability for unrecognized tax benefits with respect to the tax position taken on its 2020 tax return in its 2022 audited financial statements, the corporation is not required to report the 2020 tax position again on its 2022 tax return as a result of the 2022 increase in the unrecognized tax benefit. Example 2. Reporting unrecognized tax benefits in subsequent years. A corporation claimed a deduction in 2020 and determined under applicable accounting standards that it could recognize the full benefit of the position. In 2022, the IRS began an examination of the 2020 tax return and decided to examine whether the deduction was proper. The corporation subsequently reevaluated the tax position and recorded a liability for unrecognized tax benefits for that position in 2022. The corporation has taken a tax position in its 2020 tax return and recorded an unrecognized tax benefit with respect to that tax position. The corporation must report the tax position on Schedule UTP filed with its 2022 tax return even if the IRS identifies the tax position for examination prior to the recording of the unrecognized tax benefit. Related party. A related party is any entity that has a relationship to the corporation that is described in section 267(b), 318(a), or 707(b), or any entity that is included in consolidated audited financial statements in which the corporation is also included. Example 3. Related party general rule. Corporation A is a corporation filing Form 1120 that has $160 million of assets. Corporation B is a foreign corporation not doing business in the United States and is a related party to Corporation A. Corporations A and B issue their own audited financial statements. Corporation A takes a tax position on its tax return. If Corporation B records an unrecognized tax benefit with respect to that tax position in its own audited financial statements, even though Corporation A does not, then that tax position must be reported by Corporation A on its Schedule UTP. Example 4. Liability for unrecognized tax benefits recorded in consolidated financial statements. Corporation C files a tax return and has assets of $160 million. Corporations C and D issue consolidated audited financial statements, but they do not file a consolidated tax return. Corporation C takes a tax position for which a liability for unrecognized tax benefits was recorded in the consolidated financial statements of Corporations C and D. The tax position taken by Corporation C on its tax return must be reported on its Schedule UTP because a liability for unrecognized tax benefits was recorded for its tax position in the consolidated financial statements in which Corporation C was included. Tax benefit recognized based on expectation to litigate. A corporation must report on Schedule UTP a tax position taken on its return for which an income tax benefit was recorded if the tax position is one which the corporation or a related party determines the probability of settling with the IRS to be less than 50% and, under applicable accounting standards, the tax benefit was recorded in the audited financial statements because the corporation intends to litigate the tax position and has determined that it is more likely than not to prevail on the merits in litigation. Example 5. Tax benefit recognized after a change in circumstances based on expectation to litigate. A corporation takes a tax position on its 2020 tax return for which a tax benefit is recognized because the corporation determined the tax position is correct. Circumstances change, and in 2022 the corporation determined that the tax position was uncertain, but did not derecognize the tax benefit because of its expectation to litigate the position. That is, the corporation or a related party determines the probability of settling with the IRS to be less than 50% and, under applicable accounting standards, the tax benefit was recorded because the corporation intends to litigate the tax position and has determined that it is more likely than not to prevail on the merits in the litigation. The corporation must report that position on Part II of the Schedule UTP filed with the 2022 tax return either if it records a liability for an unrecognized tax benefit or if it records a tax benefit because it expects to litigate, even if that decision to record or not record the tax benefit occurs because of a change in circumstances in a later year. Tax position taken on a tax return. A tax position taken on a tax return means a tax position that would result in an adjustment to a line item on any schedule or form attached to the tax return (or would be included in a section 481(a) adjustment) if the position is not sustained. If multiple tax positions affect a single line item on a tax return, each tax position is a separate tax position taken on a tax return. For example, a tax position that is reported on a line item on Form 5471 is a tax position taken on a return, even though an adjustment to that line item might not result in the payment of any additional tax. A single decision about how to report an item of income, gain, loss, deduction, or credit may affect line items in multiple years’ returns. If so, that decision can result in a tax position taken on each affected year’s return. For example, a decision to amortize an expense rather than currently deduct that expense, or a decision to currently deduct rather than amortize an expense, affects line items on each year’s return in which the tax position is taken during the period of amortization. Whether these tax positions taken on a return are reported on Schedule UTP for a particular tax year, and when they are reported, depends on whether and when a liability for unrecognized tax benefits is recorded. See Example 7 and Example 8 , later. Note. The use of a net operating loss (NOL) or a credit carryforward is a tax position taken on a tax return. A corporation must report the use of an NOL or credit carryforward as a tax position taken on the return even if the corporation has previously reported the tax position that created or added to the NOL or credit carryforward on Schedule UTP. See Example 10 , later. Unit of account. A unit of account is the level of detail used in analyzing a tax position, taking into account both the level at which the taxpayer prepares and supports the tax return and the level at which the taxpayer anticipates addressing the issue with the IRS. The unit of account used by a GAAP or modified GAAP taxpayer for reporting a tax position on Schedule UTP must be the same unit of account used by the taxpayer for GAAP or modified GAAP. In the case of audited financial statements prepared under accounting standards other than GAAP or modified GAAP, a corporation that issues audited financial statements with a unit of account that is based upon the entire tax year may not use that unit of account for Schedule UTP. The corporation must instead identify a unit of account based on similar principles applicable to GAAP or modified GAAP taxpayers, or use any other level of detail that is consistently applied if that identification is reasonably expected to apprise the IRS of the identity and nature of the issue underlying the tax position taken on the tax return. Example 6. Unit of account. Corporation A and Corporation B each have two individual research projects and each anticipates claiming a research and development credit arising out of their projects. Corporation A chooses each individual research project as the unit of account for GAAP financial reporting purposes, since the corporation accumulates information for the tax return about the projects at the project level and expects the IRS to address the issues during an examination of each project separately. Corporation B determines that the appropriate unit of account for GAAP financial reporting purposes is the functional expenditures, based on the amount of its expenditures, the anticipated credits to be claimed, its previous experience, and the advice of its tax advisors. Based on the unit of account used for financial reporting purposes, Corporation A must use each project as its unit of account for Schedule UTP reporting, and Corporation B must use functional expenditures as its unit of account for Schedule UTP reporting, regarding the research and development credit. Ranking Tax Positions by Size The corporation must rank by size each tax position listed in Parts I and II. See the instructions for Part I, column (h), regarding coding to be used to rank the corporation’s tax positions. Size. The size of each tax position is determined on an annual basis and is the amount of unrecognized U.S. federal income tax benefits recorded for that position. If an unrecognized tax benefit is recorded for multiple tax positions, then a reasonable allocation of that unrecognized tax benefit among the tax positions to which it relates must be made in determining the size of each tax position. If an amount of interest or penalties relating to a tax position is not identified in the books and records as being associated with that position, then that amount of interest and penalties is not included in the size of a tax position used to rank that position or compute whether the position is a major tax position. Expectation to litigate. Do not determine a size for positions listed because of an expectation to litigate. See the instructions for Parts I and II, column (h), regarding ranking of these positions. Affiliated groups. The determination of the size of a tax position taken on a tax return by an affiliated group filing a consolidated return is to be determined at the affiliated group level for all members of the affiliated group. Coordination With Other Reporting Requirements A complete and accurate disclosure of a tax position on the appropriate year’s Schedule UTP will be treated as if the corporation filed a Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, regarding the tax position. A separate Form 8275 or Form 8275-R need not be filed to avoid certain accuracy-related penalties with respect to that tax position. For tax positions contrary to a rule otherwise reportable on Form 8275, you must identify the statutory provision on Schedule UTP, Parts I and II, in column (b); and the revenue ruling, revenue procedure, or other guidance in column (c). For tax positions contrary to a regulation otherwise reportable on Form 8275-R, you must identify the statutory provision on Schedule UTP, Parts I and II, column (b); and enter the full regulation citation in column (d) (see Specific Instructions, later). For all tax positions otherwise reportable on Form 8275 or Form 8275-R, the concise description of UTPs on Schedule UTP, Part III must include all the information required under those forms. Failure to provide a complete and accurate disclosure of the tax position on Schedule UTP will not satisfy the section 6662 adequate disclosure requirements for Form 8275, 8275-R, or tax positions reported on Schedule UTP. Amended Returns A complete and accurate disclosure of a tax position on Schedule UTP, Form 8275, or Form 8275-R must be included in an amended return that is filed to claim the benefit of the tax positions reported on these disclosure forms. If an amended return is filed to carryover attributes such as net operating losses or tax credits arising from tax positions reported in prior filings, the disclosure forms do not need to be completed. Instead, attach a statement to the amended return that identifies each tax position, the amount, the nature of the disclosure, the form used to report the disclosure, and the tax year in which the tax position originates. Comprehensive Examples Example 7. Multiple year positions. A corporation incurred an expenditure in 2019 and claimed the entire amount as a deduction on its 2019 return. During the course of reviewing its tax positions for purposes of evaluating whether to recognize a benefit for uncertain tax positions for U.S. federal income taxes for its 2019 audited financial statements, the corporation determined it was uncertain whether the expenditure should instead be amortized over 5 years and records a liability for unrecognized tax benefits with respect to the position taken in 2019. The corporation recognized the tax benefits for the positions taken in tax years 2020 through 2023. The corporation has taken a tax position in each of the 5 tax years because, on each year’s tax return, there would be an adjustment to a line item on that return if the position taken in that year’s return is not sustained. The tax position taken in the 2019 tax year must be reported on Part I of Schedule UTP filed with the 2019 tax return. None of the 2020 to 2023 tax positions must be reported on Schedule UTP because the corporation recognized the tax benefits with respect to those tax positions. Example 8. Multiple year positions. A corporation incurred an expenditure in 2018 and took the position that the expenditure may be amortized over 15 years beginning on its 2018 tax return. During the course of reviewing its tax positions for purposes of evaluating tax benefit recognition for U.S. federal income taxes for its 2018 audited financial statements, the corporation determined that it was uncertain whether any deduction or amortization of this expenditure is allowable. In the 2018 audited financial statements, the corporation recorded a liability for unrecognized tax benefits with respect to the amortization deduction to be claimed in each tax year. The corporation has taken a tax position in each of the 15 tax years because on each year’s tax return there would be an adjustment to a line item on that return if the position taken in that year is not sustained. The corporation reported the 2018 tax position on Part I of Schedule UTP for the 2018 tax year. In addition, the tax position to be taken in each of the 2019 to 2032 tax years must be reported on Part I of the Schedule UTP filed with the tax return for the respective tax year in which the tax position was taken. The result would be the same if, instead of recording the liability for unrecognized tax benefits in 2018 for all of the tax positions taken in each of the 15 years, the corporation records a liability for unrecognized tax benefits in each year that specifically relates to the tax position taken on the return for that year. Example 9. Transition rule. The facts are the same as in Example 8 except that the corporation incurred the expenditure and recorded the liability for unrecognized tax benefits in 2009. The corporation has taken a tax position in each of the 15 tax years (2009 through 2023) because on each year’s tax return there would be an adjustment to a line item on that return if the position taken in that year is not sustained. However, the corporation was not required to report the tax position taken in the 2009 tax year because it was taken in a tax year beginning before January 1, 2010. The corporation reports the tax position taken in each of the 2010 to 2023 tax years on Part I of the Schedule UTP filed with its tax return for the respective tax year in which the position was taken. Example 10. Creation and use of net operating loss (NOL). A corporation incurred a $50 expenditure in 2018 and claimed the entire amount as a deduction on its 2018 tax return. The deduction increases the corporation’s NOL carryforward from $100 to $150. The corporation used the entire $150 NOL carryforward on its 2019 tax return. Claiming the $50 deduction in 2018 is a tax position taken in the 2018 tax year because the position would result in an adjustment to a line item on the 2018 tax return if the position is not sustained. The deduction in 2019 of the NOL carried forward from 2018 is a tax position taken on the 2019 tax return, because the position would result in an adjustment to a line item on the 2019 tax return if the position is not sustained. The corporation recorded a liability for unrecognized tax benefits with respect to its 2018 tax position in its 2018 audited financial statements. Because the corporation recorded a liability for an unrecognized tax benefit with respect to the tax position taken in 2018, it reported the 2018 tax position on the Schedule UTP filed with its 2018 tax return. Even though it reported the tax position in its 2018 tax return, the corporation should also report the 2019 tax position on the Schedule UTP filed with its tax return for the 2019 tax year because the deduction of the NOL carried forward from 2018 is a tax position taken on the 2019 tax return that would result in an adjustment to a line item on the 2019 tax return if the position is not sustained. Example 11. Amended return. A corporation takes a tax position that generates excess foreign tax credits (FTC) for the 2022 tax year. The tax position is reported on Part I, No. C1, of the Schedule UTP attached to the corporation's 2022 tax return. The corporation files Form 1120X for tax year 2021 to claim the benefits of the unused credits on its 2021 tax return. The corporation should attach a statement to the 2021 amended return indicating that the FTC carryback arose from the tax position disclosed in tax year 2022, Schedule UTP, Part I, UTP No. C1. Example 12. Corporate merger. On June 30, 2022, MergerCo merges into AcquiringCo, in a transaction in which AcquiringCo survives. MergerCo's tax year ends on that date. After the merger, AcquiringCo records an unrecognized tax benefit with respect to a tax position that is taken on MergerCo's final return in its audited financial statements. That tax position must be reported on Part I of the Schedule UTP filed with MergerCo's 2022 tax return even though the unrecognized tax benefit was recorded by AcquiringCo. AcquiringCo should not report the tax position on the Schedule UTP filed with its 2022 tax return because MergerCo's final return is a prior year tax return on which the tax position was reported. Specific Instructions Part I. Uncertain Tax Positions for the Current Tax Year When To Complete Part I Complete Part I to report tax positions taken by the corporation on its current tax return. Information From Related Parties Check the box at the top of Part I if the corporation was unable to obtain sufficient information from one or more related parties and was therefore unable to determine whether a tax position taken on its current year’s tax return is required to be reported in Part I of this schedule. Column (a). UTP No. Enter a number in column (a) for each tax position reported. The UTP numbers on Part I, column (a), include a preprinted “C” prefix to indicate that they are positions for the current tax year. A corresponding UTP number with the letter “C” prefix will be used on Part III for reporting the description of the tax position. Begin with the number 1, do not skip any whole numbers, do not enter extraneous characters, and do not duplicate any numbers (for example, C1, C2, C3, where the letters “C” are preprinted on the schedule and the numbers are entered). Each tax position taken on a return is considered a separate UTP. Do not group or combine multiple tax positions together. Column (b). Primary IRC Sections Provide the primary IRC sections (up to three) relating to the tax position. Enter one primary IRC section in each box (for example, “61,”“108,”“263A,” etc.). Do not include descriptive references or any other text such as “IRC,” “Section,” or “IRC Sec.” Beneath each primary IRC section, you may enter the applicable IRC subsections (for example, (f)(2)(A)(ii)), using the preprinted parentheses. If there are more than four subsection components, list only the first four. Column (c). Rev. Rul. (RR), Rev. Proc. (RP), etc. If you are disclosing a tax position contrary to a rule (such as a statutory provision or IRS Revenue Ruling) otherwise reportable on Form 8275, you must identify the rule in column (c). Enter the authoritative source using the abbreviation listed below and the applicable numeric reference. Do not include a space between the letters and numbers (for example, “RR2021–02”). Abbreviation Authoritative Source RP Revenue Procedure RR Revenue Ruling NOT Notice CT Court Decision Column (d). Regulation Section If you are disclosing a tax position contrary to a Treasury regulation otherwise reportable on Form 8275-R, enter the regulation section in the box (for example, “1.482-7”). In the preprinted parentheses beneath each regulation section number, enter all designations of smaller units (lettered or numbered subsections, paragraphs, subparagraphs, and clauses) to which the contrary position relates (for example, “(d)(1)(iii)”). Column (e). Timing Codes Check “T” for temporary differences, “P” for permanent differences, or check both “T” and “P” for a tax position that creates both a temporary and permanent difference. Categorization as a temporary difference, permanent difference, or both must be consistent with the accounting standards used to prepare the audited financial statements. Column (f). Pass-Through Entity EIN If the tax position taken by the corporation relates to a tax position of a pass-through entity, enter the employer identification number (EIN) of the pass-through entity to which the tax position relates. For example, if the corporation is a partner in a partnership and the tax position involves the partner’s distributive share of an item of income, gain, loss, deduction, or credit of the partnership, enter the EIN of the partnership. A pass-through entity is any entity listed in section 1(h)(10). If the tax position is not related to a tax position of a pass-through entity, leave this blank. Enter “F” if the pass-through entity is a foreign entity that does not have an EIN. Column (g). Major Tax Position (Item or Groups of Items) Check this box if the relative size of the tax position is greater than or equal to 0.10 (10%). The relative size of a tax position is the amount computed by dividing the size of that position by the sum of all of the sizes for all of the tax positions listed on Parts I and II. Disregard expectation to litigate positions for column (g) purposes. Round amounts using rules similar to the rules in the Instructions for Form 1120 (or the instructions for the applicable tax return) for rounding dollar amounts. Column (h). Ranking of Tax Position Enter a letter and a ranking number for each tax position. Use the letter T for transfer pricing positions and the letter G for all other tax positions. Rank all tax positions in Parts I and II together, regardless of type. Include amounts of deferred income in determining the ranking of tax positions. Starting with the largest size, assign the number 1 to the largest, the number 2 to the next largest, and so on, in order. This number is the ranking number for the tax position. Expectation to litigate positions may be assigned any ranking number. For example, the corporation has one transfer pricing tax position and two other tax positions. The transfer pricing position is the largest and one of the other tax positions is an expectation to litigate position. The expectation to litigate position is assigned a rank of 2. Enter “T1” for the transfer pricing position, “G2” for the expectation to litigate position, and “G3” for the second other tax position. Columns (i) Through (k) Identify the location of the tax position and amount of the income tax benefits (see the definition of size earlier) reported on the tax return. Enter the form number or schedule and the line number in columns (i) and (j) and the amount of the item in column (k). For an expense item, report in column (k) the amount reported on the line of the form, schedule, or attached statement that includes the tax position taken. If the tax position relates to an item of deferred income or unearned revenue, report in columns (i) and (j) the schedule or form and line number where the item is reported (for example, Sch. M-3, line 20, or Sch. L, line 21). Report in column (k) the amount reported on the line of the form, schedule, or attached statement that includes the tax position taken. Instructions for Schedule UTP (Form 1120) - Notices Part II. Uncertain Tax Positions for Prior Tax Years When To Complete Part II Complete Part II to report tax positions taken by the corporation in a prior tax year that have not been reported on a Schedule UTP filed with a prior year’s tax return. Do not report a tax position taken in a tax year beginning before January 1, 2010. See Transition rule under Reporting Uncertain Tax Positions on Schedule UTP , earlier. Information From Related Parties Check the box at the top of Part II if the corporation was unable to obtain sufficient information from one or more related parties and was therefore unable to determine whether a tax position taken on its prior year's tax return is required to be reported in Part II of this schedule. Column (a). UTP No. Continue the numeric sequence based on the last UTP number entered on Part I. For example, if the last UTP listed on Part I is 3, enter 4 for the first UTP listed in Part II. The UTP numbers on Part II, column (a), include a preprinted “P” prefix to indicate that they are positions for prior tax years. A corresponding UTP number with a letter “P” prefix will be used on Part III for reporting the description of the tax position. Do not skip any whole numbers, do not enter extraneous characters, and do not duplicate any numbers (for example, P4, P5, P6, where the letters “P” are preprinted on the schedule and the numbers are entered). Each tax position taken on a return is considered a separate UTP. Do not group or combine multiple tax positions together. Column (b). Primary IRC Sections See the instructions for Part I, column (b). Column (c). Rev. Rule, Rev. Proc., etc. See the instructions for Part I, column (c). Column (d). Regulation Section See the instructions for Part I, column (d). Column (e). Timing Codes See the instructions for Part I, column (e). Column (f). Pass-Through Entity EIN See the instructions for Part I, column (f). Column (g). Major Tax Position See the instructions for Part I, column (g). Column (h). Ranking of Tax Position See the instructions for Part I, column (h). Columns (i) Through (k) See the instructions for Part I, columns (i) through (k). Column (l). Year of Tax Position List the prior tax year in which the tax position was taken and the last month and day of that tax year, using a six-digit number. For example, enter 202212 for tax years ending December 31, 2022, and 202209 for tax years ending September 30, 2022. Part III. Concise Description of UTPs When To Complete Part III Part III must be completed for every tax position listed in Part I and Part II. Enter the corresponding UTP number from Part I, column (a) (for example, C1, C2, C3) or Part II, column (a) (for example, P4, P5, P6), related to the description. Concise description. For Schedule UTP to be considered complete, the corporation must include a description of the relevant facts affecting the tax treatment of the position and information that can reasonably be expected to apprise the IRS of the identity of the tax position, and the nature of the issue for which the tax position is being disclosed. A “description of the relevant facts affecting the tax treatment of the position” should include all information pertaining to the nature of the uncertainty related to the tax position. For example, if a corporation's tax position is to claim a current year deduction for the cost of fixing the roof of a building, the description should indicate why it was determined that the work was performed to keep the asset in normal operating condition and why the costs do not improve or extend the useful life of the asset. The “identity of the tax position” should provide information that further defines the primary IRC section(s), rule, or regulation section listed in Parts I and II of Schedule UTP, such as the identification of a 15-year depreciable life assigned to land improvement assets under section 168 or indicating that a request has been filed in accordance with Rev. Rul. 90-38 to change from an erroneous method of accounting for advanced payments. Information concerning “the nature of the issue for which the tax position is being disclosed” can include a factual description of the legal issues presented. It should identify, for example, the specific entity, country, or transaction to which the tax position relates, the character of income, the type of expense or credit, the relationship of the tax position to other assets or activities, and whether the uncertainty relates to computational issues, substantiation issues, sampling methodologies, or legal interpretation. Stating that a concise description is “Available upon request” is not an adequate description. A concise description should not include an assessment of the hazards of a tax position or an analysis of the support for or against the tax position. Examples of Concise Descriptions for Hypothetical Fact Patterns The following examples set out a description of hypothetical facts and the uncertainties about a tax position that would be reportable on Schedule UTP. Following each set of hypothetical facts, which would not be disclosed on the schedule, are examples of insufficient and sufficient disclosures. In each hypothetical example, the sufficient description would be reported in Part III to disclose that hypothetical case. Example 13. Allocation of costs between uncompleted and completed acquisitions. Facts. The corporation investigated and negotiated several potential business acquisitions during the tax year. One of the transactions was completed during the tax year, but all other negotiations failed and the other potential transactions were abandoned during the tax year. The corporation deducted costs of investigating and partially negotiating potential business acquisitions that were not completed and capitalized costs allocable to one business acquisition that was completed. The corporation established an unrecognized tax benefit for financial accounting purposes in recognition of the possibility that the amount of costs allocated to the uncompleted acquisition attempts was excessive. Insufficient disclosure. The corporation incurred costs during the tax year for investigating business acquisitions. Sufficient concise description. The corporation incurred costs of completing one business acquisition and also incurred costs investigating and partially negotiating potential business acquisitions that were not completed. The costs were allocated between the completed and uncompleted acquisitions. The issue is whether the allocation of costs between uncompleted acquisitions and the completed acquisition is appropriate. Example 14. Recharacterization of distribution as a sale. Facts. The corporation is a member of Venture LLC, which is treated as a U.S. partnership for tax purposes. During the tax year, Venture LLC raised funds through (i) admitting a new member for a cash contribution and (ii) borrowing funds from a financial institution, using a loan partially guaranteed by the corporation. Also during the tax year, Venture LLC made a cash distribution to the corporation that caused its membership interest in Venture LLC to be reduced from 25% to 2%. The corporation has taken the position that the cash distribution is properly characterized as a nontaxable distribution that does not exceed its basis in its Venture LLC interest, but has established an unrecognized tax benefit for financial accounting purposes, recognizing that the transaction might be recharacterized as a taxable sale of a portion of its Venture LLC interest under section 707(a)(2). Insufficient disclosure. The corporation received a nontaxable cash distribution during the tax year. Sufficient concise description. The corporation is a member of Venture LLC, which is treated as a U.S. partnership for tax purposes. The corporation received a cash distribution during the year from Venture LLC. The issue is the potential application of section 707(a)(2) to recharacterize the distribution as a sale of a portion of the corporation's Venture LLC interest. Example 15. Qualified Research expenditures. Facts. The company incurred in-house expenses for researching and developing new product line X. An analysis was performed to determine which of the activities performed by the company's employees constituted qualified services related to this new product line. The company claimed qualified research expenses for services performed in the new product engineering and manufacturing departments, as well as certain other departments that directly support these departments. The corporation established an unrecognized tax benefit for financial accounting purposes in recognition of the possibility that some of these costs may not meet the definition of qualified research expenditures. Insufficient disclosure. The corporation incurred research expenditures and claimed a credit for increasing research activities. Sufficient concise description. The corporation incurred costs for the research and development of new product line X. The company performed surveys and conducted interviews with the new product engineering, manufacturing, and support department employees in order to determine the qualifying in-house research expenditures. The issue is whether these in-house service costs meet the definition of qualified research expenditures. Example 16. Transfer pricing. Facts. A Country Y corporation manufactures and sells Product Z in Region A pursuant to a license of technology and marketing intangibles from its publicly traded U.S. parent corporation. The amount of the royalties paid for the use of the U.S. parent corporation's technology and marketing intangibles was determined based on a transfer pricing study. For financial accounting purposes, the U.S. parent corporation established an unrecognized tax benefit in recognition of the possibility that the amount of the royalties would be subject to an adjustment under section 482 increasing its U.S. tax liability. Insufficient disclosure The taxpayer has a licensing agreement with a foreign subsidiary that is supported by a transfer pricing study. Sufficient concise description. Pursuant to a licensing agreement, taxpayer transferred technology and marketing intangibles for the manufacturing and sale of Product Z in Region A to its Country Y subsidiary. The issue is whether the amount of taxpayer's royalty income for the Region A technology and marketing intangibles for Product Z will be increased pursuant to section 482, thereby increasing its U.S. tax liability.
