Schedule UTP (Form 1120)

Instructions for

Schedule UTP (Form 1120)

Department of the Treasury

Internal Revenue Service

(Rev. December 2022)

Uncertain Tax Position Statement

Section references are to the Internal Revenue

Code unless otherwise noted.

Future Developments

For the latest information about

developments related to Schedule UTP

(Form 1120) and its instructions, such

as legislation enacted after they were

published, go to IRS.gov/ScheduleUTP.

General Instructions

Purpose of Schedule

Schedule UTP asks for information

about tax positions that affect the U.S.

federal income tax liabilities of certain

corporations that issue or are included

in audited financial statements and have

assets that equal or exceed $10 million.

Reporting Uncertain

Tax Positions

on Schedule UTP

Tax positions to be reported.

Schedule UTP requires the reporting of

each U.S. federal income tax position

taken by an applicable corporation on

its U.S. federal income tax return for

which two conditions are satisfied.

1. The corporation has taken a tax

position on its U.S. federal income tax

return for the current tax year or for a

prior tax year.

2. Either the corporation or a related

party has recorded a liability for

unrecognized tax benefits with respect

to that tax position for U.S. federal

income tax in audited financial

statements, or the corporation or related

party recognized the tax benefit for that

tax position because the corporation

expects to litigate the position.

A tax position for which a liability for

unrecognized tax benefits was recorded

(or for which a tax benefit was

recognized because of an expectation

to litigate) must be reported on

Schedule UTP regardless of whether

the audited financial statements are

prepared based on U.S. generally

accepted accounting principles (GAAP),

International Financial Reporting

Standards (IFRS), or other

Dec 13, 2022

country-specific accounting standards,

including a modified version of any of

the above (for example, modified

GAAP).

If the corporation evaluates a tax

position and determines that it meets

the recognition threshold for uncertain

tax benefits in an interim audited

financial statement issued before the tax

position is taken on a return, the

corporation need not report the tax

position to which the tax benefit relates

on Schedule UTP.

A tax position is based on the unit of

account used to prepare the audited

financial statements in which the liability

for an unrecognized tax benefit is

recorded (or in which the tax benefit

was recognized because of an

expectation to litigate). A tax position

taken on a tax return is a tax position

that would result in an adjustment to a

line item on that tax return if the position

is not sustained. If multiple tax positions

affect a single line item on a tax return,

report each tax position separately on

Schedule UTP. See Tax position taken

on a tax return, later.

Reporting current year and prior

year tax positions. Tax positions

taken by the corporation on the current

year’s tax return are reported in Part I.

Tax positions taken by the corporation

on a prior year’s tax return are reported

on Part II. A corporation is not required

to report a tax position it has taken in a

prior tax year if the corporation reported

that tax position on a Schedule UTP

filed with a prior year tax return. If a

transaction results in tax positions taken

on more than one tax return, the tax

positions must be reported on Part I of

the Schedule UTP attached to each tax

return in which a tax position is taken

regardless of whether the transaction or

a tax position resulting from the

transaction was disclosed in a

Schedule UTP filed with a prior year’s

tax return. See Example 7 and

Example 8, later. Do not report a tax

position on Schedule UTP before the

tax year in which the tax position is

taken on a tax return by the corporation.

If, after a subsidiary member leaves a

consolidated group, the subsidiary, or a

Cat. No. 55028G

related party of the subsidiary, records a

liability for unrecognized tax benefits in

an audited financial statement with

respect to one of the subsidiary’s tax

positions in its former group’s prior

return, the subsidiary should report the

tax position on Part II of the

Schedule UTP filed with its current tax

return, if it files a separate return. If the

subsidiary is included in the return of

another consolidated group that is

required to file Schedule UTP, the

common parent of that consolidated

group should report the tax position on

Part II of the Schedule UTP filed with the

group’s current tax return.

Concise description of tax position.

A corporation that reports a tax position

in either Part I or Part II is required to

provide a description of each tax

position in Part III. See Examples 13

through 16, later.

Consistency with financial statement

reporting. The analysis of whether a

liability for unrecognized tax benefits

has been recorded for the purpose of

completing Schedule UTP is

determined by reference to the tax

benefit recognition decisions made by

the corporation or a related party for

audited financial statement purposes. If

the corporation or a related party

determined that, under applicable

accounting standards, either the tax

benefit could be recognized for a tax

position taken on a tax return because

the amount was immaterial for audited

financial statement purposes, or that a

tax position satisfied the recognition and

measurement process under Financial

Accounting Standards Board (FASB)

Accounting Standards Codification

(ASC) Subtopic 740-10, then the

corporation need not report the tax

position on Schedule UTP. For a

corporation subject to FASB ASC

740-10, a tax position is recognized,

and therefore need not be reported on

Schedule UTP, if it meets the

recognition and measurement process

for evaluating tax positions in the

corporation's financial statements.

Transition rule. A corporation is not

required to report on Schedule UTP a

tax position taken in a tax year

beginning before January 1, 2010, even

if a liability for unrecognized tax benefits

is recorded with respect to that tax

position in audited financial statements

issued in 2010 or later. See Example 9,

later. In addition, a corporation is not

required to report accruals of interest

and penalties on an unrecognized tax

benefit recorded with respect to a tax

position taken on a pre-2010 tax return.

Periods covered. File Schedule UTP

with the corporation’s current year's tax

return.

Who Must File

A corporation must file Schedule UTP

for the current tax year if:

1. The corporation files Form 1120,

U.S. Corporation Income Tax Return;

Form 1120-F, U.S. Income Tax Return

of a Foreign Corporation; Form 1120-L,

U.S. Life Insurance Company Income

Tax Return; or Form 1120-PC, U.S.

Property and Casualty Insurance

Company Income Tax Return;

2. The corporation has assets that

equal or exceed $10 million;

3. The corporation or a related party

issued audited financial statements

reporting all or a portion of the

corporation’s operations for all or a

portion of the corporation’s tax year; and

4. The corporation has one or more

tax positions that must be reported on

Schedule UTP.

Do not file a blank Schedule UTP if

there are no tax positions to be

reported.

Attach Schedule UTP to the

corporation's income tax return. Do not

file it separately. A taxpayer that files a

protective Form 1120, 1120-F, 1120-L,

or 1120-PC must also file Schedule UTP

if it satisfies the four requirements set

forth above.

A corporation required to file

Schedule UTP must also check “Yes” to

Form 1120, Schedule K, Question 14;

Form 1120-F, Additional Information,

Question AA; Form 1120-L,

Schedule M, Question 15; or Form

1120-PC, Schedule I, Question 13.

Computation of assets that equal or

exceed $10 million. For the following

corporate income tax returns:

Forms 1120, 1120-L, and 1120-PC.

A corporation’s assets equal or exceed

$10 million if the amount reported on

page 1, item D of Form 1120, or the

higher of the beginning or end of year

total assets reported on Schedule L of

Form 1120-L or Form 1120-PC, is at

least $10 million.

Form 1120-F. The assets of a

corporation filing a Form 1120-F equal

or exceed $10 million if the higher of the

beginning or end of year total worldwide

assets of the corporation reported on

Form 1120-F, Schedule L, line 17,

would be at least $10 million if the

corporation were to prepare a

Schedule L on a worldwide basis.

Affiliated groups. An affiliated group

of corporations filing a consolidated

return will file one Schedule UTP for the

affiliated group. The affiliated group

need not identify the member of the

group to which the tax position relates,

or which member recorded the liability

for unrecognized tax benefits for the tax

position. Any affiliate that files its U.S.

federal income tax return separately and

satisfies the requirements set forth

above must file a Schedule UTP with its

return setting forth its own tax positions.

Definitions and Special Rules

Note. All examples in these instructions

assume the calendar year is the

reporting year both for U.S. federal

income tax and financial statement

purposes and the independent auditor’s

opinion on the audited financial

statements is issued before the filing of

the tax return.

Audited financial statements.

Audited financial statements mean

financial statements on which an

independent auditor has expressed an

opinion, whether qualified, unqualified,

disclaimed, or adverse, under GAAP,

IFRS, or another country-specific

accounting standard, including a

modified version of any of the above (for

example, modified GAAP). Compiled or

reviewed financial statements are not

audited financial statements.

Record a liability for unrecognized

tax benefits. A corporation or a related

party records a liability for unrecognized

tax benefits for a U.S. federal income

tax position when a liability for

unrecognized tax benefits for U.S.

federal income tax, interest, or penalties

with respect to that position is recorded

in the audited financial statements of the

corporation or a related party. A liability

for an unrecognized tax benefit is

recorded when an uncertain tax position

or ASC 740-10 liability is stated

anywhere in a corporation’s or related

party’s financial statements, including

footnotes and any other disclosures,

and may be indicated by any of several

types of accounting journal entries.

Some of the types of entries that,

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entered alone or in tandem, indicate the

recording of a liability for unrecognized

tax benefits are (1) an increase in a

current or non-current liability for income

taxes, interest or penalties payable, or a

reduction of a current or non-current

receivable for income taxes and/or

interest with respect to the tax position;

or (2) a reduction in a deferred tax asset

or an increase in a deferred tax liability

with respect to the tax position.

Liabilities for unrecognized tax benefits

are created when a tax position taken

on a return does not satisfy the

recognition and measurement process

for evaluating tax benefits on the

financial statements under ASC 740-10.

A tax position that is not “more likely

than not” to be sustained based on its

technical merits, or a tax position that is

more likely than not to be sustained but

less than 50 percent likely of being

realized upon ultimate settlement, is

recorded as a liability for unrecognized

tax benefits under ASC 740-10.

The initial recording of a liability for

unrecognized tax benefits will trigger

reporting of a tax position taken on a

return. However, subsequent

unrecognized tax benefit increases or

decreases with respect to the tax

position will not.

If a corporation is included in multiple

audited financial statements, the

corporation must report a tax position on

Schedule UTP if a liability for

unrecognized tax benefits for that

position was recorded in any of those

audited financial statements.

Example 1. General rule regarding

recording a liability for unrecognized

tax benefits. A corporation recorded a

liability for unrecognized tax benefits in

its 2020 audited financial statements

relating to a tax position taken on its tax

return for the 2020 tax year. The

corporation filed its 2020 tax return on

October 15, 2021. The corporation

reported the 2020 tax position on Part I

of Schedule UTP and filed

Schedule UTP with its 2020 tax return. If

the corporation increases its liability for

unrecognized tax benefits with respect

to the tax position taken on its 2020 tax

return in its 2022 audited financial

statements, the corporation is not

required to report the 2020 tax position

again on its 2022 tax return as a result

of the 2022 increase in the

unrecognized tax benefit.

Example 2. Reporting

unrecognized tax benefits in

subsequent years. A corporation

claimed a deduction in 2020 and

determined under applicable accounting

Instructions for Schedule UTP (Form 1120)

standards that it could recognize the full

benefit of the position. In 2022, the IRS

began an examination of the 2020 tax

return and decided to examine whether

the deduction was proper. The

corporation subsequently reevaluated

the tax position and recorded a liability

for unrecognized tax benefits for that

position in 2022. The corporation has

taken a tax position in its 2020 tax return

and recorded an unrecognized tax

benefit with respect to that tax position.

The corporation must report the tax

position on Schedule UTP filed with its

2022 tax return even if the IRS identifies

the tax position for examination prior to

the recording of the unrecognized tax

benefit.

Related party. A related party is any

entity that has a relationship to the

corporation that is described in section

267(b), 318(a), or 707(b), or any entity

that is included in consolidated audited

financial statements in which the

corporation is also included.

Example 3. Related party general

rule. Corporation A is a corporation

filing Form 1120 that has $160 million of

assets. Corporation B is a foreign

corporation not doing business in the

United States and is a related party to

Corporation A. Corporations A and B

issue their own audited financial

statements. Corporation A takes a tax

position on its tax return. If Corporation

B records an unrecognized tax benefit

with respect to that tax position in its

own audited financial statements, even

though Corporation A does not, then

that tax position must be reported by

Corporation A on its Schedule UTP.

Example 4. Liability for

unrecognized tax benefits recorded

in consolidated financial statements.

Corporation C files a tax return and has

assets of $160 million. Corporations C

and D issue consolidated audited

financial statements, but they do not file

a consolidated tax return. Corporation C

takes a tax position for which a liability

for unrecognized tax benefits was

recorded in the consolidated financial

statements of Corporations C and D.

The tax position taken by Corporation C

on its tax return must be reported on its

Schedule UTP because a liability for

unrecognized tax benefits was recorded

for its tax position in the consolidated

financial statements in which

Corporation C was included.

Tax benefit recognized based on expectation to litigate. A corporation

must report on Schedule UTP a tax

position taken on its return for which an

income tax benefit was recorded if the

tax position is one which the corporation

or a related party determines the

probability of settling with the IRS to be

less than 50% and, under applicable

accounting standards, the tax benefit

was recorded in the audited financial

statements because the corporation

intends to litigate the tax position and

has determined that it is more likely than

not to prevail on the merits in litigation.

Example 5. Tax benefit

recognized after a change in

circumstances based on expectation

to litigate. A corporation takes a tax

position on its 2020 tax return for which

a tax benefit is recognized because the

corporation determined the tax position

is correct. Circumstances change, and

in 2022 the corporation determined that

the tax position was uncertain, but did

not derecognize the tax benefit because

of its expectation to litigate the position.

That is, the corporation or a related

party determines the probability of

settling with the IRS to be less than 50%

and, under applicable accounting

standards, the tax benefit was recorded

because the corporation intends to

litigate the tax position and has

determined that it is more likely than not

to prevail on the merits in the litigation.

The corporation must report that

position on Part II of the Schedule UTP

filed with the 2022 tax return either if it

records a liability for an unrecognized

tax benefit or if it records a tax benefit

because it expects to litigate, even if

that decision to record or not record the

tax benefit occurs because of a change

in circumstances in a later year.

Tax position taken on a tax return. A

tax position taken on a tax return means

a tax position that would result in an

adjustment to a line item on any

schedule or form attached to the tax

return (or would be included in a section

481(a) adjustment) if the position is not

sustained. If multiple tax positions affect

a single line item on a tax return, each

tax position is a separate tax position

taken on a tax return. For example, a tax

position that is reported on a line item

on Form 5471 is a tax position taken on

a return, even though an adjustment to

that line item might not result in the

payment of any additional tax.

A single decision about how to report

an item of income, gain, loss, deduction,

or credit may affect line items in multiple

years’ returns. If so, that decision can

result in a tax position taken on each

affected year’s return. For example, a

decision to amortize an expense rather

than currently deduct that expense, or a

decision to currently deduct rather than

Instructions for Schedule UTP (Form 1120)

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amortize an expense, affects line items

on each year’s return in which the tax

position is taken during the period of

amortization. Whether these tax

positions taken on a return are reported

on Schedule UTP for a particular tax

year, and when they are reported,

depends on whether and when a liability

for unrecognized tax benefits is

recorded. See Example 7 and

Example 8, later.

Note. The use of a net operating loss

(NOL) or a credit carryforward is a tax

position taken on a tax return. A

corporation must report the use of an

NOL or credit carryforward as a tax

position taken on the return even if the

corporation has previously reported the

tax position that created or added to the

NOL or credit carryforward on

Schedule UTP. See Example 10, later.

Unit of account. A unit of account is

the level of detail used in analyzing a tax

position, taking into account both the

level at which the taxpayer prepares

and supports the tax return and the level

at which the taxpayer anticipates

addressing the issue with the IRS. The

unit of account used by a GAAP or

modified GAAP taxpayer for reporting a

tax position on Schedule UTP must be

the same unit of account used by the

taxpayer for GAAP or modified GAAP.

In the case of audited financial

statements prepared under accounting

standards other than GAAP or modified

GAAP, a corporation that issues audited

financial statements with a unit of

account that is based upon the entire

tax year may not use that unit of account

for Schedule UTP. The corporation must

instead identify a unit of account based

on similar principles applicable to GAAP

or modified GAAP taxpayers, or use any

other level of detail that is consistently

applied if that identification is

reasonably expected to apprise the IRS

of the identity and nature of the issue

underlying the tax position taken on the

tax return.

Example 6. Unit of account.

Corporation A and Corporation B each

have two individual research projects

and each anticipates claiming a

research and development credit arising

out of their projects. Corporation A

chooses each individual research

project as the unit of account for GAAP

financial reporting purposes, since the

corporation accumulates information for

the tax return about the projects at the

project level and expects the IRS to

address the issues during an

examination of each project separately.

Corporation B determines that the

appropriate unit of account for GAAP

financial reporting purposes is the

functional expenditures, based on the

amount of its expenditures, the

anticipated credits to be claimed, its

previous experience, and the advice of

its tax advisors. Based on the unit of

account used for financial reporting

purposes, Corporation A must use each

project as its unit of account for

Schedule UTP reporting, and

Corporation B must use functional

expenditures as its unit of account for

Schedule UTP reporting, regarding the

research and development credit.

Ranking Tax Positions by Size

The corporation must rank by size each

tax position listed in Parts I and II. See

the instructions for Part I, column (h),

regarding coding to be used to rank the

corporation’s tax positions.

Size. The size of each tax position is

determined on an annual basis and is

the amount of unrecognized U.S.

federal income tax benefits recorded for

that position. If an unrecognized tax

benefit is recorded for multiple tax

positions, then a reasonable allocation

of that unrecognized tax benefit among

the tax positions to which it relates must

be made in determining the size of each

tax position.

If an amount of interest or penalties

relating to a tax position is not identified

in the books and records as being

associated with that position, then that

amount of interest and penalties is not

included in the size of a tax position

used to rank that position or compute

whether the position is a major tax

position.

Expectation to litigate. Do not

determine a size for positions listed

because of an expectation to litigate.

See the instructions for Parts I and II,

column (h), regarding ranking of these

positions.

Affiliated groups. The determination

of the size of a tax position taken on a

tax return by an affiliated group filing a

consolidated return is to be determined

at the affiliated group level for all

members of the affiliated group.

Coordination With Other

Reporting Requirements

A complete and accurate disclosure of a

tax position on the appropriate year’s

Schedule UTP will be treated as if the

corporation filed a Form 8275,

Disclosure Statement, or Form 8275-R,

Regulation Disclosure Statement,

regarding the tax position. A separate

Form 8275 or Form 8275-R need not be

filed to avoid certain accuracy-related

penalties with respect to that tax

position.

For tax positions contrary to a rule

otherwise reportable on Form 8275, you

must identify the statutory provision on

Schedule UTP, Parts I and II, in column

(b); and the revenue ruling, revenue

procedure, or other guidance in column

(c). For tax positions contrary to a

regulation otherwise reportable on Form

8275-R, you must identify the statutory

provision on Schedule UTP, Parts I and

II, column (b); and enter the full

regulation citation in column (d) (see

Specific Instructions, later). For all tax

positions otherwise reportable on Form

8275 or Form 8275-R, the concise

description of UTPs on Schedule UTP,

Part III must include all the information

required under those forms.

Failure to provide a complete

and accurate disclosure of the

CAUTION tax position on Schedule UTP

will not satisfy the section 6662

adequate disclosure requirements for

Form 8275, 8275-R, or tax positions

reported on Schedule UTP.

!

Amended Returns

A complete and accurate disclosure of a

tax position on Schedule UTP, Form

8275, or Form 8275-R must be included

in an amended return that is filed to

claim the benefit of the tax positions

reported on these disclosure forms. If an

amended return is filed to carryover

attributes such as net operating losses

or tax credits arising from tax positions

reported in prior filings, the disclosure

forms do not need to be completed.

Instead, attach a statement to the

amended return that identifies each tax

position, the amount, the nature of the

disclosure, the form used to report the

disclosure, and the tax year in which the

tax position originates.

Comprehensive Examples

Example 7. Multiple year

positions. A corporation incurred an

expenditure in 2019 and claimed the

entire amount as a deduction on its

2019 return. During the course of

reviewing its tax positions for purposes

of evaluating whether to recognize a

benefit for uncertain tax positions for

U.S. federal income taxes for its 2019

audited financial statements, the

corporation determined it was uncertain

whether the expenditure should instead

be amortized over 5 years and records

a liability for unrecognized tax benefits

with respect to the position taken in

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2019. The corporation recognized the

tax benefits for the positions taken in tax

years 2020 through 2023. The

corporation has taken a tax position in

each of the 5 tax years because, on

each year’s tax return, there would be

an adjustment to a line item on that

return if the position taken in that year’s

return is not sustained. The tax position

taken in the 2019 tax year must be

reported on Part I of Schedule UTP filed

with the 2019 tax return. None of the

2020 to 2023 tax positions must be

reported on Schedule UTP because the

corporation recognized the tax benefits

with respect to those tax positions.

Example 8. Multiple year

positions. A corporation incurred an

expenditure in 2018 and took the

position that the expenditure may be

amortized over 15 years beginning on

its 2018 tax return. During the course of

reviewing its tax positions for purposes

of evaluating tax benefit recognition for

U.S. federal income taxes for its 2018

audited financial statements, the

corporation determined that it was

uncertain whether any deduction or

amortization of this expenditure is

allowable. In the 2018 audited financial

statements, the corporation recorded a

liability for unrecognized tax benefits

with respect to the amortization

deduction to be claimed in each tax

year. The corporation has taken a tax

position in each of the 15 tax years

because on each year’s tax return there

would be an adjustment to a line item on

that return if the position taken in that

year is not sustained. The corporation

reported the 2018 tax position on Part I

of Schedule UTP for the 2018 tax year.

In addition, the tax position to be taken

in each of the 2019 to 2032 tax years

must be reported on Part I of the

Schedule UTP filed with the tax return

for the respective tax year in which the

tax position was taken. The result would

be the same if, instead of recording the

liability for unrecognized tax benefits in

2018 for all of the tax positions taken in

each of the 15 years, the corporation

records a liability for unrecognized tax

benefits in each year that specifically

relates to the tax position taken on the

return for that year.

Example 9. Transition rule. The

facts are the same as in Example 8

except that the corporation incurred the

expenditure and recorded the liability for

unrecognized tax benefits in 2009. The

corporation has taken a tax position in

each of the 15 tax years (2009 through

2023) because on each year’s tax return

there would be an adjustment to a line

item on that return if the position taken

Instructions for Schedule UTP (Form 1120)

in that year is not sustained. However,

the corporation was not required to

report the tax position taken in the 2009

tax year because it was taken in a tax

year beginning before January 1, 2010.

The corporation reports the tax position

taken in each of the 2010 to 2023 tax

years on Part I of the Schedule UTP

filed with its tax return for the respective

tax year in which the position was taken.

Example 10. Creation and use of

net operating loss (NOL). A

corporation incurred a $50 expenditure

in 2018 and claimed the entire amount

as a deduction on its 2018 tax return.

The deduction increases the

corporation’s NOL carryforward from

$100 to $150. The corporation used the

entire $150 NOL carryforward on its

2019 tax return. Claiming the $50

deduction in 2018 is a tax position taken

in the 2018 tax year because the

position would result in an adjustment to

a line item on the 2018 tax return if the

position is not sustained. The deduction

in 2019 of the NOL carried forward from

2018 is a tax position taken on the 2019

tax return, because the position would

result in an adjustment to a line item on

the 2019 tax return if the position is not

sustained. The corporation recorded a

liability for unrecognized tax benefits

with respect to its 2018 tax position in its

2018 audited financial statements.

Because the corporation recorded a

liability for an unrecognized tax benefit

with respect to the tax position taken in

2018, it reported the 2018 tax position

on the Schedule UTP filed with its 2018

tax return. Even though it reported the

tax position in its 2018 tax return, the

corporation should also report the 2019

tax position on the Schedule UTP filed

with its tax return for the 2019 tax year

because the deduction of the NOL

carried forward from 2018 is a tax

position taken on the 2019 tax return

that would result in an adjustment to a

line item on the 2019 tax return if the

position is not sustained.

Example 11. Amended return. A

corporation takes a tax position that

generates excess foreign tax credits

(FTC) for the 2022 tax year. The tax

position is reported on Part I, No. C1, of

the Schedule UTP attached to the

corporation's 2022 tax return. The

corporation files Form 1120X for tax

year 2021 to claim the benefits of the

unused credits on its 2021 tax return.

The corporation should attach a

statement to the 2021 amended return

indicating that the FTC carryback arose

from the tax position disclosed in tax

year 2022, Schedule UTP, Part I, UTP

No. C1.

Example 12. Corporate merger.

On June 30, 2022, MergerCo merges

into AcquiringCo, in a transaction in

which AcquiringCo survives.

MergerCo's tax year ends on that date.

After the merger, AcquiringCo records

an unrecognized tax benefit with

respect to a tax position that is taken on

MergerCo's final return in its audited

financial statements. That tax position

must be reported on Part I of the

Schedule UTP filed with MergerCo's

2022 tax return even though the

unrecognized tax benefit was recorded

by AcquiringCo. AcquiringCo should not

report the tax position on the

Schedule UTP filed with its 2022 tax

return because MergerCo's final return

is a prior year tax return on which the tax

position was reported.

Specific Instructions

Part I. Uncertain Tax

Positions for the Current

Tax Year

When To Complete Part I

Complete Part I to report tax positions

taken by the corporation on its current

tax return.

Information From Related Parties

Check the box at the top of Part I if the

corporation was unable to obtain

sufficient information from one or more

related parties and was therefore unable

to determine whether a tax position

taken on its current year’s tax return is

required to be reported in Part I of this

schedule.

Column (a). UTP No.

Enter a number in column (a) for each

tax position reported. The UTP numbers

on Part I, column (a), include a

preprinted “C” prefix to indicate that they

are positions for the current tax year. A

corresponding UTP number with the

letter “C” prefix will be used on Part III

for reporting the description of the tax

position. Begin with the number 1, do

not skip any whole numbers, do not

enter extraneous characters, and do not

duplicate any numbers (for example,

C1, C2, C3, where the letters “C” are

preprinted on the schedule and the

numbers are entered). Each tax position

taken on a return is considered a

separate UTP. Do not group or combine

multiple tax positions together.

Instructions for Schedule UTP (Form 1120)

-5-

Column (b). Primary IRC Sections

Provide the primary IRC sections (up to

three) relating to the tax position. Enter

one primary IRC section in each box (for

example, “61,” “108,” “263A,” etc.). Do

not include descriptive references or

any other text such as “IRC,” “Section,”

or “IRC Sec.” Beneath each primary IRC

section, you may enter the applicable

IRC subsections (for example, (f)(2)(A)

(ii)), using the preprinted parentheses. If

there are more than four subsection

components, list only the first four.

Column (c). Rev. Rul. (RR), Rev.

Proc. (RP), etc.

If you are disclosing a tax position

contrary to a rule (such as a statutory

provision or IRS Revenue Ruling)

otherwise reportable on Form 8275, you

must identify the rule in column (c).

Enter the authoritative source using the

abbreviation listed below and the

applicable numeric reference. Do not

include a space between the letters and

numbers (for example, “RR2021–02”).

Abbreviation

RP

RR

NOT

CT

Authoritative Source

Revenue Procedure

Revenue Ruling

Notice

Court Decision

Column (d). Regulation Section

If you are disclosing a tax position

contrary to a Treasury regulation

otherwise reportable on Form 8275-R,

enter the regulation section in the box

(for example, “1.482-7”). In the

preprinted parentheses beneath each

regulation section number, enter all

designations of smaller units (lettered or

numbered subsections, paragraphs,

subparagraphs, and clauses) to which

the contrary position relates (for

example, “(d)(1)(iii)”).

Column (e). Timing Codes

Check “T” for temporary differences, “P”

for permanent differences, or check

both “T” and “P” for a tax position that

creates both a temporary and

permanent difference. Categorization as

a temporary difference, permanent

difference, or both must be consistent

with the accounting standards used to

prepare the audited financial

statements.

Column (f). Pass-Through Entity

EIN

If the tax position taken by the

corporation relates to a tax position of a

pass-through entity, enter the employer

identification number (EIN) of the

pass-through entity to which the tax

position relates. For example, if the

corporation is a partner in a partnership

and the tax position involves the

partner’s distributive share of an item of

income, gain, loss, deduction, or credit

of the partnership, enter the EIN of the

partnership. A pass-through entity is any

entity listed in section 1(h)(10). If the tax

position is not related to a tax position of

a pass-through entity, leave this blank.

Enter “F” if the pass-through entity is a

foreign entity that does not have an EIN.

Column (g). Major Tax Position

(Item or Groups of Items)

Check this box if the relative size of the

tax position is greater than or equal to

0.10 (10%). The relative size of a tax

position is the amount computed by

dividing the size of that position by the

sum of all of the sizes for all of the tax

positions listed on Parts I and II.

Disregard expectation to litigate

positions for column (g) purposes.

Round amounts using rules similar to

the rules in the Instructions for Form

1120 (or the instructions for the

applicable tax return) for rounding dollar

amounts.

Column (h). Ranking of Tax

Position

Enter a letter and a ranking number for

each tax position. Use the letter T for

transfer pricing positions and the letter

G for all other tax positions.

Enter “T1” for the transfer pricing

position, “G2” for the expectation to

litigate position, and “G3” for the second

other tax position.

Columns (i) Through (k)

Identify the location of the tax position

and amount of the income tax benefits

(see the definition of size earlier)

reported on the tax return. Enter the

form number or schedule and the line

number in columns (i) and (j) and the

amount of the item in column (k). For an

expense item, report in column (k) the

amount reported on the line of the form,

schedule, or attached statement that

includes the tax position taken.

If the tax position relates to an item of

deferred income or unearned revenue,

report in columns (i) and (j) the schedule

or form and line number where the item

is reported (for example, Sch. M-3,

line 20, or Sch. L, line 21). Report in

column (k) the amount reported on the

line of the form, schedule, or attached

statement that includes the tax position

taken.

Part II. Uncertain Tax

Positions for Prior Tax

Years

Column (b). Primary IRC Sections

See the instructions for Part I, column

(b).

Column (c). Rev. Rule, Rev. Proc.,

etc.

See the instructions for Part I, column

(c).

Column (d). Regulation Section

See the instructions for Part I, column

(d).

Column (e). Timing Codes

See the instructions for Part I, column

(e).

When To Complete Part II

Complete Part II to report tax positions

taken by the corporation in a prior tax

year that have not been reported on a

Schedule UTP filed with a prior year’s

tax return. Do not report a tax position

taken in a tax year beginning before

January 1, 2010. See Transition rule

under Reporting Uncertain Tax

Positions on Schedule UTP, earlier.

Column (f). Pass-Through Entity

EIN

See the instructions for Part I, column

(f).

Column (g). Major Tax Position

See the instructions for Part I, column

(g).

Information From Related Parties

Rank all tax positions in Parts I and II

together, regardless of type. Include

amounts of deferred income in

determining the ranking of tax positions.

Starting with the largest size, assign the

number 1 to the largest, the number 2 to

the next largest, and so on, in order.

This number is the ranking number for

the tax position. Expectation to litigate

positions may be assigned any ranking

number.

Column (a). UTP No.

For example, the corporation has one

transfer pricing tax position and two

other tax positions. The transfer pricing

position is the largest and one of the

other tax positions is an expectation to

litigate position. The expectation to

litigate position is assigned a rank of 2.

Continue the numeric sequence based

on the last UTP number entered on Part

I. For example, if the last UTP listed on

Part I is 3, enter 4 for the first UTP listed

in Part II. The UTP numbers on Part II,

column (a), include a preprinted “P”

prefix to indicate that they are positions

Check the box at the top of Part II if the

corporation was unable to obtain

sufficient information from one or more

related parties and was therefore unable

to determine whether a tax position

taken on its prior year's tax return is

required to be reported in Part II of this

schedule.

-6-

for prior tax years. A corresponding UTP

number with a letter “P” prefix will be

used on Part III for reporting the

description of the tax position. Do not

skip any whole numbers, do not enter

extraneous characters, and do not

duplicate any numbers (for example,

P4, P5, P6, where the letters “P” are

preprinted on the schedule and the

numbers are entered). Each tax position

taken on a return is considered a

separate UTP. Do not group or combine

multiple tax positions together.

Column (h). Ranking of Tax

Position

See the instructions for Part I, column

(h).

Columns (i) Through (k)

See the instructions for Part I, columns

(i) through (k).

Column (l). Year of Tax Position

List the prior tax year in which the tax

position was taken and the last month

and day of that tax year, using a six-digit

number. For example, enter 202212 for

tax years ending December 31, 2022,

Instructions for Schedule UTP (Form 1120)

and 202209 for tax years ending

September 30, 2022.

Part III. Concise

Description of UTPs

When To Complete Part III

Part III must be completed for every tax

position listed in Part I and Part II. Enter

the corresponding UTP number from

Part I, column (a) (for example, C1, C2,

C3) or Part II, column (a) (for example,

P4, P5, P6), related to the description.

Concise description. For

Schedule UTP to be considered

complete, the corporation must include

a description of the relevant facts

affecting the tax treatment of the

position and information that can

reasonably be expected to apprise the

IRS of the identity of the tax position,

and the nature of the issue for which the

tax position is being disclosed.

A “description of the relevant facts

affecting the tax treatment of the

position” should include all information

pertaining to the nature of the

uncertainty related to the tax position.

For example, if a corporation's tax

position is to claim a current year

deduction for the cost of fixing the roof

of a building, the description should

indicate why it was determined that the

work was performed to keep the asset

in normal operating condition and why

the costs do not improve or extend the

useful life of the asset.

The “identity of the tax position”

should provide information that further

defines the primary IRC section(s), rule,

or regulation section listed in Parts I and

II of Schedule UTP, such as the

identification of a 15-year depreciable

life assigned to land improvement

assets under section 168 or indicating

that a request has been filed in

accordance with Rev. Rul. 90-38 to

change from an erroneous method of

accounting for advanced payments.

Information concerning “the nature of

the issue for which the tax position is

being disclosed” can include a factual

description of the legal issues

presented. It should identify, for

example, the specific entity, country, or

transaction to which the tax position

relates, the character of income, the

type of expense or credit, the

relationship of the tax position to other

assets or activities, and whether the

uncertainty relates to computational

issues, substantiation issues, sampling

methodologies, or legal interpretation.

Stating that a concise description is

“Available upon request” is not an

adequate description.

A concise description should not

include an assessment of the hazards of

a tax position or an analysis of the

support for or against the tax position.

Examples of Concise Descriptions

for Hypothetical Fact Patterns

The following examples set out a

description of hypothetical facts and the

uncertainties about a tax position that

would be reportable on Schedule UTP.

Following each set of hypothetical facts,

which would not be disclosed on the

schedule, are examples of insufficient

and sufficient disclosures. In each

hypothetical example, the sufficient

description would be reported in Part III

to disclose that hypothetical case.

Example 13. Allocation of costs

between uncompleted and

completed acquisitions.

Facts. The corporation investigated

and negotiated several potential

business acquisitions during the tax

year. One of the transactions was

completed during the tax year, but all

other negotiations failed and the other

potential transactions were abandoned

during the tax year. The corporation

deducted costs of investigating and

partially negotiating potential business

acquisitions that were not completed

and capitalized costs allocable to one

business acquisition that was

completed. The corporation established

an unrecognized tax benefit for financial

accounting purposes in recognition of

the possibility that the amount of costs

allocated to the uncompleted acquisition

attempts was excessive.

Insufficient disclosure. The

corporation incurred costs during the tax

year for investigating business

acquisitions.

Sufficient concise description.

The corporation incurred costs of

completing one business acquisition

and also incurred costs investigating

and partially negotiating potential

business acquisitions that were not

completed. The costs were allocated

between the completed and

uncompleted acquisitions. The issue is

whether the allocation of costs between

uncompleted acquisitions and the

completed acquisition is appropriate.

Example 14. Recharacterization of

distribution as a sale.

Instructions for Schedule UTP (Form 1120)

-7-

Facts. The corporation is a member

of Venture LLC, which is treated as a

U.S. partnership for tax purposes.

During the tax year, Venture LLC raised

funds through (i) admitting a new

member for a cash contribution and (ii)

borrowing funds from a financial

institution, using a loan partially

guaranteed by the corporation. Also

during the tax year, Venture LLC made

a cash distribution to the corporation

that caused its membership interest in

Venture LLC to be reduced from 25% to

2%. The corporation has taken the

position that the cash distribution is

properly characterized as a nontaxable

distribution that does not exceed its

basis in its Venture LLC interest, but has

established an unrecognized tax benefit

for financial accounting purposes,

recognizing that the transaction might

be recharacterized as a taxable sale of

a portion of its Venture LLC interest

under section 707(a)(2).

Insufficient disclosure. The

corporation received a nontaxable cash

distribution during the tax year.

Sufficient concise description.

The corporation is a member of Venture

LLC, which is treated as a U.S.

partnership for tax purposes. The

corporation received a cash distribution

during the year from Venture LLC. The

issue is the potential application of

section 707(a)(2) to recharacterize the

distribution as a sale of a portion of the

corporation's Venture LLC interest.

Example 15. Qualified Research

expenditures.

Facts. The company incurred

in-house expenses for researching and

developing new product line X. An

analysis was performed to determine

which of the activities performed by the

company's employees constituted

qualified services related to this new

product line. The company claimed

qualified research expenses for services

performed in the new product

engineering and manufacturing

departments, as well as certain other

departments that directly support these

departments. The corporation

established an unrecognized tax benefit

for financial accounting purposes in

recognition of the possibility that some

of these costs may not meet the

definition of qualified research

expenditures.

Insufficient disclosure. The

corporation incurred research

expenditures and claimed a credit for

increasing research activities.

Sufficient concise description.

The corporation incurred costs for the

research and development of new

product line X. The company performed

surveys and conducted interviews with

the new product engineering,

manufacturing, and support department

employees in order to determine the

qualifying in-house research

expenditures. The issue is whether

these in-house service costs meet the

definition of qualified research

expenditures.

Example 16. Transfer pricing.

Facts. A Country Y corporation

manufactures and sells Product Z in

Region A pursuant to a license of

technology and marketing intangibles

from its publicly traded U.S. parent

corporation. The amount of the royalties

paid for the use of the U.S. parent

corporation's technology and marketing

intangibles was determined based on a

transfer pricing study. For financial

accounting purposes, the U.S. parent

corporation established an

unrecognized tax benefit in recognition

of the possibility that the amount of the

royalties would be subject to an

adjustment under section 482

increasing its U.S. tax liability.

-8-

Insufficient disclosure The

taxpayer has a licensing agreement with

a foreign subsidiary that is supported by

a transfer pricing study.

Sufficient concise description.

Pursuant to a licensing agreement,

taxpayer transferred technology and

marketing intangibles for the

manufacturing and sale of Product Z in

Region A to its Country Y subsidiary.

The issue is whether the amount of

taxpayer's royalty income for the Region

A technology and marketing intangibles

for Product Z will be increased pursuant

to section 482, thereby increasing its

U.S. tax liability.

Instructions for Schedule UTP (Form 1120)