Requirements of Reporting Uncertain Tax Positions

Tax Professionals' Resource
March 28, 2013 — 1,414 views  
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According to a new standard in accounting, businesses would now be required to report uncertain tax positions as identified in UTP (Uncertain Tax Position) form. The tax year 2010 forms the base year since when the disclosure would be required. Corporations having over $10 million assets with uncertain tax position, and financial statements audited are required to file the relevant form. The requirement of mandatory disclosure may be expanded to include other entities and organizations after the evaluation of the program in its first year.   

Understanding Uncertain Tax Positions

Uncertain tax position, according to the latest draft, is a position under the federal tax on income. In the audited statement on finance, if a taxpayer records a reserve, it is held to fall under the uncertain tax position. Even when reserve is not reported due to reasons like IRS practice or likelihood of litigation, it comes under the purview of uncertain tax position. The liabilities for uncertain tax positions may be recognized by a company when there is the likelihood of additional taxes coming due. The liabilities are presented as current income tax payable except when prior tax losses are being carried forward to offset future taxes that will become due.  

Eligibility for Uncertain Tax Positions

According to the announcement, businesses with at least ten million dollars in assets have the reporting requirement. Additionally, the businesses that have audited financial statement or the businesses with audited financial statement in which a related party has indicated “reserve” will also be eligible for uncertain tax positions. Those that are required to file one among the several forms including Form 1120 or similar forms also need to report the same. Further decisions on who are eligible to report uncertain tax position were expected to be taken after a year of the announcement based on evaluation. 

Uncertain Tax Position – What to Disclose

When reporting an uncertain tax position, revenue code, up to a maximum of three needs to be identified. Each of the uncertain tax positions must be described precisely. These positions may have been identified either by the taxpayer or the related party. The tax liability (maximum) also needs to be identified. The underlying rationale for the uncertainty must be disclosed precisely. Uncertain tax position must be linked to the relevant revenue code and tax years in context of the positions. Details like whether the position is linked to income, deductions, gain or loss, etc. must be disclosed.

The nature of the position, whether temporary or permanent, is another relevant item of disclosure. While the temporary position may be offset by positions in the later years, the permanent position is not offset. Pass-through is another item of disclosure for reporting, as it identifies the status of the taxpayer such as shareholder or partner.

Time Period to Report Uncertain Tax Position

A decision to record reserve must be taken at least sixty days prior to filing the tax. In case such a decision is taken within this timeframe, it needs to be reported next year. It is assumed, however, that the tax position needs to be reported every year.

Tax Professionals' Resource