IRS finalizes 2022 Schedule UTP and instructions

In detail

The IRS on October 11 announced draft changes to Schedule UTP and instructions for the 2022 tax year. See our Insight, IRS updates Schedule UTP and instructions, for more information.

The IRS requested comments from stakeholders on the draft Schedule UTP and instructions and received several helpful comments. The IRS has revised the instructions in response to these comments. These revisions include:

• Contrary Authorities in Column (c): The instructions have been revised to clarify that taxpayers using Schedule UTP in lieu of Form 8275, Disclosure Statement, to disclose tax positions identified as being contrary to a rule should use column (c) for disclosing that rule. The draft instructions included citations for guidance not published in the Internal Revenue Bulletin (IRB). However, in response to comments, the instructions have been revised to list only published IRB guidance and court decisions.

Observation: This amendment serves to limit the more expansive definition of contrary authority found in the initial draft. The IRB includes guidance such as revenue rulings, revenue procedures, notices, and announcements, providing a more reasonable approach for taxpayers to follow when drafting the descriptions on the updated form. This revision provides more clarity in comparison to the previous draft.

• Columns (i) to (k): The instructions have been revised to clarify that the request in these columns is not for the amount of the unrecognized tax benefit but rather for the amount of the line item on the taxpayer's return that includes the unrecognized tax benefit.

The instructions also make the following clarifications to the concise description section:

• The IRS policy of restraint as set forth in Announcement 2010-76 remains in effect.
• The IRS will treat a complete and accurate disclosure of a tax position as if the corporation filed a Form 8275 or Form 8275-R, Regulation Disclosure Statement, regarding the tax position for the accuracy-related penalty due to disregard of rules or regulations or a substantial understatement of income tax.

Observation: While many commentators recommended delaying the effective date of the changes, the IRS instead has finalized the revised Schedule UTP and instructions, making them applicable for returns filed for the 2022 tax year.