UTP & M-3 Updates
TEI-IRS Liaison Meeting
The Woodlands, TX
May 14, 2012
Schedule UTP Objectives
•
•
•
•
•
2
IRS strategy to improve compliance through
greater transparency
Reduce the time it takes to find issues
Spend more time discussing the law as it
applies to the facts, rather than looking for
information
Identify areas of uncertainty requiring
guidance, and
Help prioritize the selection of issues and
taxpayers for examination.
UTP Directive for LB&I
• Establish a centralized review process
housed in LB&I to enable IRS to:
– Determine whether disclosures are in
compliance with the schedule instructions;
– select issues for audit;
– identify trends;
– identify and understand gaps in guidance; and
– determine the proper treatment of UTPs.
3
LB&I UTP Implementation
• LB&I implemented a process for identifying and
centrally collecting returns with UTP schedules,
• LB&I established a coordinated and consistent
approach for handling UTP information,
• UTP guidance and training developed and
delivered,
• Centralized Review of Schedule UTPs by
subject matter experts,
• Feedback is being collected from revenue
agents, managers and SMEs about the
Schedule UTP.
4
UTP Filing Statistics TY 2010
1,947 Taxpayers filed Schedule UTP
– 21% Were CIC taxpayers
– 3% CAP taxpayers
– 97% Form 1120
– 3% Forms 1120F, L & PC
– 25% Reported International Ownership
– 41% Returns prepared by the “Big 4”
– 49% Reported only one uncertain tax position
5
UTP Issue Statistics TY 2010
•
•
•
•
•
•
•
•
6
25% were International issues
32% were Transfer Pricing issues
26% of concise descriptions identified as “major issues”
69% of concise description issues identified as
permanent or both permanent/timing issues
32% of issues disclosed from taxpayers in three states
Average of 3.1 disclosures for CIC taxpayers
Average of 1.9 disclosures for IC taxpayers
Top IRC sections were 41, 482 and 162, representing
38% of total issues disclosed
Top Ten Industries with UTP Disclosures
7
Review of Concise Descriptions
• Per Schedule UTP Instructions:
– “Provide a concise description of the tax
position, including a description of the
relevant facts affecting the tax treatment of
the position and information that reasonably
can be expected to apprise the IRS of the
identity of the tax position and the nature of
the issue.”
8
Results of the Review
• Only 3% of the more than 4,000 concise
descriptions reviewed did not sufficiently
follow the Schedule UTP Instructions
• Education and Outreach Letters mailed to
105 taxpayers
• No specific action required this year,
but….
9
Hypothetical Examples of
Insufficient Concise Descriptions
• This issue is under audit for a prior year.
• This issue is one for which we have recorded a reserve
because it was unresolved in prior years and is currently
in Appeals.
• This is an issue for which we have recorded a reserve
because the appropriate tax treatment of this position is
unsettled and we are awaiting published guidance and
we are awaiting the outcome of pending litigation.
• This is an issue that we know is subject to IRS scrutiny.
• This issue relates to how we have characterized certain
expenditures and related deductions.
10
UTP Next Steps
• Review and assess feedback from SMEs and
Field personnel and results of examinations of
returns with Schedule UTP
• Identify areas where additional guidance,
training, or direction may be warranted
• Improve Schedule UTP instructions and/or form
• Prepare for continued implementation of
Schedule UTP to additional taxpayers
11
Schedule M-3 Review
Schedule M-3 Timeline
• December 2004
– Form 1120 Schedule M-3 introduced for corporations with $10
million or more in total assets replacing the Schedule M-1
– As requested by Taxpayers to address burden relief - only columns
(b) and (c) required for 2004
– All columns (a) through (d) required by December 2005
• December 2006
– M-3 applied to Forms 1120-L and 1120-PC with $10 million or more
in assets and mixed group sub-consolidation introduced
– M-3 applied to Forms 1120-S and 1065 with $10 million or more in
assets and to certain smaller partnerships
• December 2007
– M-3 applied to Form 1120-F with $10 million or more in assets
13
Schedule M-3 Timeline
• December 2008
– Question on Financial Statement Accounting Standards
added to Part I
– Financial Statement Total Assets and Total Liabilities
added to Part I
• September 2010
– Commissioner Shulman announced that IRS will review M3, Sept 2010
• December 2010
– R&D and Section 118 exclusion added to Part III
14
Extensive External & Internal
Stakeholder Input Obtained
• TEI and AICPA Comments
• IRSAC Recommendations
• External Focus Groups with Non-CIC
Taxpayers
• IRS/LB&I Employee Survey
• IRS/LB&I Employee M-3 Focus Groups
• Other Government Stakeholders
15
External Feedback Themes
•
•
•
•
•
•
•
•
•
16
Reduce taxpayer burden
Streamline M-3 and supporting schedules
Simplify and reduce required tax lines
Align 1120 M-3 and 1120 page 1
Scale back Parts II and III
Reduce or eliminate need for attached schedules
Eliminate Form 8916-A COGS detail
Increase asset threshold for filing the M-3
Communicate how IRS/LB&I has used the M-3
Internal Feedback Themes
• M-3 helps with risk analysis, issue identification,
and in identifying LUQ items
• M-3 should reconcile to 1120 page 1
• Incorporate 8916-A into M-3
• Too much is reported in “other” and netting
• Too many missing attachments
• Mixed views as to whether M-3 saved time
• Slight inverse correlation between length of IRS
service and preference for M-3
• Need for additional and recurring M-3 training
17
Project Status
•
•
•
•
Intensive review of all feedback completed
Recommendations developed
Pending LB&I and IRS Commissioner approval
Proposed changes will then be shared for public
comment
• Revised Schedule M-3 form and instructions will
be finalized and implemented for TY13
18