New Schedule UTP: " Uncertain Tax Positions in the Age of Transparency"

A taxpayer, when signing the jurat on the tax return, swears under penalties of perjury that the tax return is true, accurate, and complete.1 But, as a general rule, the taxpayer need not have a subjective belief that the tax position taken on the tax return is sustainable when making this sworn statement.  Furthermore, tax advisors need not believe that a tax position is ultimately sustainable before they advise the client to take a position on a tax return. This leniency in the nation’s tax reporting standard contributes to the nation’s “tax gap.”   For 2001, the IRS estimates that the tax gap was $345 billion.

Although the above state of affairs is not new, this year the IRS has announced a radical and far-reaching compliance initiative for certain large corporate taxpayers. In this regard, certain large corporate taxpayers will now be required to complete a new disclosure schedule as part of their federal income tax return.   In this new disclosure schedule (called “Schedule UTP”), the taxpayer is required to separately disclose and describe each uncertain tax position or “soft spots” contained in the taxpayer’s income tax return.  This new Schedule UTP disclosure requirement represents an important new chapter in the self-assessment requirements imposed on taxpayers under the country’s income tax laws.