On October 11, 2022, the IRS announced draft changes to Schedule UTP, Uncertain Tax Position Statement.1 These are the first material changes to Schedule UTP since the IRS first published the schedule in 2010. An IRS official claimed the changes are necessary because "many taxpayer descriptions of uncertain tax positions are insufficient and unhelpful, with some providing just two words, such as 'accrued bonus.'"2 But the changes may conflict with the IRS's internal policy of restraint on tax accrual workpapers and renew old concerns about waiver of privileges. This article summarizes the important takeaways from the changes.


Schedule UTP is used by corporations to report uncertain tax positions on their annual tax returns.3An uncertain tax position includes any position for which reserves have been established and documented pursuant to FIN 48 (codified at ASC 740-10), as well as those positions for which no reserve was established, but where the taxpayer expects to litigate the position with a more likely than not chance of prevailing on the merits.4 The IRS first issued Schedule UTP on September 24, 2010, after a period of public comment on a draft schedule.5 In response to the draft schedule, many tax practitioners argued that Schedule UTP required production of privileged and work product information.6The IRS attempted to address these concerns in two steps.

First, the IRS scaled back the schedule's requirements between the draft and final versions. The most notable of these changes was to narrow what is required to be included in the "concise description" of uncertain tax positions. The draft instructions required corporations to include "the rationale for the position and the reasons for determining the position is uncertain."7 Under the final instructions, corporations had to only include "the relevant facts affecting the tax treatment of the position and information that reasonably can be expected to apprise the Service of the identity of the tax position and the nature of the issue."8An IRS official explained that the changes were intended to make clear that "UTP policy is not about piggybacking on the taxpayers' work, ... nor about getting taxpayers to write their own notes of adjustment."9

Second, the IRS expanded its policy of restraint to documents used to prepare Schedule UTP. The IRS is of the view that tax accrual workpapers do not constitute privileged or work product information, and thus the IRS has the authority to request or summon such information from corporations.10But under its policy of restraint, the IRS will neither request nor summon tax accrual workpapers during an examination, unless unusual circumstances apply or the item under examination is a listed transaction.11Thus, where the policy of restraint applies, corporations are not required to produce arguably privileged or work product information, and may thereby preserve certain privileges in subsequent litigation. In Announcement 2010-76,12 the IRS clarified that the documents used to prepare Schedule UTP would be treated as workpapers that are given protection under this policy of restraint.

Proposed Changes to Schedule UTP

The proposed changes to Schedule UTP significantly expand the information that must be reported by corporations for uncertain tax positions. Corporations must now report the following three additional categories of information: (1) any IRS guidance or court decision that is contrary to the taxpayer's tax position; (2) the location of the tax position in the tax return (i.e., the line number on the relevant form or schedule); and (3) the incremental amount included on the line related to the tax position.13In addition, the revised instructions provide enhanced guidance and additional examples on what constitutes an adequate disclosure for the "concise description." To be considered complete, the disclosure must now "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, its amount, unit of account, and the nature of the controversy or potential controversy."

The instructions even suggest that a corporation must include a reference to the IRS's stance on the tax position during examination, with Example 16 being most instructive. Example 16 specifically requires the corporation to identify the IRS's adverse position in a potential transfer pricing dispute, i.e., an increased royalty amount resulting in an increased U.S. tax liability.15

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.

Issues with the Changes

The draft Schedule UTP may violate the IRS's policy of restraint. In defining tax accrual workpapers, the Internal Revenue Manual provides that "a request to reveal the existence or amount of a tax reserve established for any specific known or unknown transaction, however, is the same as asking for a description of a portion of the contents of the tax accrual workpapers."16 Requiring corporations to report the incremental amount of each uncertain tax position, along with more detailed descriptions for each position, seems to constitute a request for a portion of the tax accrual workpapers. Such requests "are covered by the same policy of restraint as requests for the actual documents that make up the tax accrual workpapers."17 The IRS is thus, in effect, requesting tax accrual workpapers through Schedule UTP in direct violation of its' policy of restraint.

In addition, disclosure on Schedule UTP could constitute waiver of certain privileges. The IRS's policy of restraint only extends to IRS examinations. It does not limit the IRS Chief Counsel's office or the Department of Justice from arguing waiver of attorney-client privilege, tax-practitioner privilege, or the work-product doctrine. Excessive disclosure on Schedule UTP may waive these privileges because the IRS is both a third-party and an adversarial party. Schedule UTP thus places corporations in the difficult position of choosing between underreporting on the schedule, thereby failing to adequately disclose an uncertain tax position, or waiving privilege in subsequent litigation. Either way, the corporation loses.


Corporations need to thoroughly consider how to comply with the new reporting requirements once finalized. Excessive disclosure on Schedule UTP may waive certain privileges for highly sensitive documents. The hard work for corporations begins now.


1. em>IRS Statement about Uncertain Tax Positions (UTP) Reporting, https://www.irs.gov/newsroom/irs-statement-about-uncertain-tax-positions-utp-reporting.

2. Kristen A. Parillo, Misleading' Instruction for Draft Schedule UTP to Be Clarified, Tax Notes, Nov. 2, 2022.

3. See Treas. Reg. § 1.6012-2(a)(4).

4. See Instructions for Schedule UTP (Form 1120) (Rev. December 2019).

5. Announcement 2010-75, 2010-41 I.R.B. 428 (September 24, 2010).

6. See e.g., Letter from Thomas M. Susman, Director of the American Bar Association Governmental Affairs Office, to the Internal Revenue Service, Re: IRS Proposals Requiring Disclosure of Uncertain Tax Positions (May 28, 2010), at 2 (The required disclosures "would require taxpayers to identify information that inherently is based on the advice of counsel and tax preparers and to share the mental impressions of their legal and tax advisers.").

7. Draft Instructions for Schedule UTP (Form 1120) (April 19, 2010), at 9.

8. Final Instructions for Schedule UTP (Form 1120) (2010), at 7.

9. Diane Freda, IRS Will Not Seek Privileged Documents Disclosed to Auditors, Chief Counsel Says, Bloomberg Law (Oct. 13, 2010). See also United States v. Adlman, 68 F.3d 1495, 1501 (2d Cir.1995) (The purpose of the work-product doctrine is "to establish a zone of privacy for strategic litigation planning and to prevent one party from piggybacking on the adversary's preparation.").

10. See Announcement 2002-63, 2002-27 I.R.B. 72 (July 8, 2002).

11. See Internal Revenue Manual § (12-08-2020).

12. 2010-41 I.R.B. 432 (Sept. 24, 2010).

13. See Draft Schedule UTP (Form 1120) (Rev. December 2022). An IRS official recently clarified that incremental amount means the total amount on the line, not the unrecognized tax benefit. Kristen A. Parillo, Misleading' Instruction for Draft Schedule UTP to Be Clarified, Tax Notes, Nov. 2, 2022. "For example, if a taxpayer reports a $2 million research credit on a tax return, of which $1 million is an unrecognized tax benefit, 'we're asking for that $2 million that's on the line of the return.'" Id. The IRS official stated that "we will certainly be clarifying that in the revised instructions." Id.

14. Draft Instructions for Schedule UTP (Form 1120) (Rev. December 2022), at 7.

15. Id. at 8.

16. Internal Revenue Manual § (07-12-2004).

17. Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.