IRS Backs Off Maximum Tax Adjustment, Phases In UTP Requirements

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IRS significantly revises its schedule for certain businesses to report their uncertain tax positions, setting up a five-year phase-in plan, and eliminating a troublesome requirement that Schedule UTP filers include a calculation of the maximum tax adjustment to a position. Instead of assigning a specific maximum adjustment, the final Schedule UTP requires a filer to rank its UTP on a scale of highest to lowest based on the size of the position, says an IRS news release (IR-2010-98). Taxpayers will use U.S. federal income tax reserve amounts to rank the position on the schedule, but will not be asked to provide reserve amounts anywhere on the schedule, IRS Commissioner Shulman says in announcing the 2010 instructions for Schedule UTP at the ABA tax section meeting in Toronto. Shulman says the guidance—welcomed by practitioners—is an effort to respond to taxpayer concerns and maintain a careful balance that ensures transparency as a high priority. In his speech, Shulman says the agency focused on reducing the burden and complexity associated with the proposal, allaying fears about the impact on attorney-client privilege matters.