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What Offshore Businesses & Tax Practitioners Need to Know About IRS Draft Schedule UTP

Posted on August 12th, 2010 | Author: Norris McLaughlin & Marcus

New Internal Revenue Service (IRS) proposal would require business taxpayers to report “uncertain tax positions” (UTP).

On June 1, 2010, the comment period ended for the new IRS Draft Schedule UTP and Draft Instructions.  What is this schedule and where does it apply?

The Draft Schedule UTP applies to corporate taxpayers (i.e., anyone filing an 1120, 1120 F, 1120 L, or 1120 PC) with at least $10 million in assets and audited financial statements.  These taxpayers will be required to file Schedule UTP with their annual U.S. federal income tax return.  The Schedule requires that the taxpayer list all U.S. federal income tax issues for which the taxpayer (i) records a reserve on its audited financial statements, (ii) does not record a reserve based on administrative practice, or (iii) does not record a reserve based on an expectation to litigate.

Affected taxpayers, such as offshore business with domestic subsidiaries or branches, would be placed in the position of providing specific information to the IRS with the likely result that the IRS would use the schedule to determine which taxpayers to audit.  IRS expects to release the final schedule in the Fall of 2010 and taxpayers would be required to file this schedule with their 2010 returns.

Stay tuned.