Schedule UTP Affects Wider Base of Corporate Taxpayers for 2014
Author: David Whitmer
With the close of the 2014 taxable year, many U.S. corporate taxpayers now will be required to report their uncertain U.S. tax positions to the IRS through Schedule UTP, Uncertain Tax Position Statement, as the asset-based filing threshold is decreasing to include corporations with audited financial statements and assets of $10 million or more for the 2014 tax year and beyond. Transfer pricing is one of the primary tax issues giving rise to uncertain tax positions. With the lowering of the asset-based threshold, corporate taxpayers with audited financials, for whom federal transfer pricing exposure only had financial reporting impacts under ASC 740-10, will now have to report such exposures to the IRS through Schedule UTP.
Schedule UTP requires corporate taxpayers to provide basic information regarding their uncertain tax positions, which the IRS uses to help determine candidates for examination as well as identifying and prioritizing issues for review in an audit. The IRS maintains an internal process for reviewing all filed Schedule UTPs and has trained its personnel on how to use this information for audit purposes. The IRS and non-U.S. tax authorities are under pressure to raise tax revenues, meaning they have increased their focus on many tax planning strategies, including transfer pricing.
Transfer pricing exposures often result from erroneous or overaggressive positions or the lack of proper documentation to substantiate intercompany charges, especially in the case of intercompany royalties and services. Corporate taxpayers with disclosures on Schedule UTP may run increased risk of IRS audit and should consider adopting measures to eliminate these uncertain tax positions. Taxpayers can reduce recurring transfer pricing-related exposures through a transfer pricing analysis with supporting documentation that will establish pricing consistent with the facts and circumstances of their intercompany transactions. Such an analysis has the potential to reduce the likelihood of income adjustments that result in additional income tax as well as any associated penalties and interest.
To learn more about how transfer pricing can be used to decrease your uncertain tax positions and reduce potential audit exposure, contact your BKD advisor.