IRS Issues Further Guidance on Exams Involving Uncertain Tax Positions

By Rachel Boehm

The Internal Revenue Service Large Business & International Division issued Nov. 1 a memorandum to provide further Schedule UTP, Statement of Uncertain Tax Position, guidance and procedures applicable to LB&I examinations not covered by May and August memorandums.

The memorandum from Commissioner Heather Maloy requires LB&I examiners and specialists, and their respective team and territory managers, to complete a just-in-time UTP training session and the prerequisite tax reserve training prior to reviewing a return that includes a Schedule UTP, Maloy said, or prior to examining an issue disclosed on a Schedule UTP. The training module will be available by Dec. 31.

Under the uncertain tax positions reporting requirement, taxpayers are required to provide a brief description of each uncertain position and to rank them, in general using the size of the reserve recorded for the position but not disclosing the actual reserve amount.

Maloy's previous memos covered initial LB&I procedures and the use of Schedule UTP as part of the compliance assurance process (CAP) program that applied only to returns filed for the 2010 tax year by taxpayers that were in CAP in 2010.

Centralized Review, Audit Process

Any return containing a Schedule UTP will undergo a compliance assessment by a Centralized Review Team prior to release to the field, according to the memo. Taxpayers will be contacted if issues arise related to the information contained in the schedule. When returns are assigned, examiners and specialists should not further evaluate the compliance of the schedule, IRS said, but should send an e-mail to *UTP@irs.gov with questions or concerns.

The mere presence of a return with a Schedule UTP should not prompt an examination, IRS said. Rather, the Schedule UTP is to be used in conjunction with the Quality Examination Process (QEP), IRS said. Any decision to select a return for audit should be based on findings from the risk analysis, discussions with the taxpayer, materiality considerations, and other steps outlined in the planning phase of the QEP, IRS said.

The same rules and procedures regarding the issuance of Integrated Data Retrieval System (IDRS) contained in the QEP Reference Guide apply to returns with Schedule UTP, according to the memo.

The complete text of this article can be found in the BNA Daily Tax Report, November 2, 2011 (http://www.bnasoftware.com/News/Tax_News/Articles/IRS_Issues_Further_Guidance_on_Exams_Involving_Uncertain_Tax_Positions.asp).

© 2011, The Bureau of National Affairs, Inc.