Cosmos International Management Co., Ltd.

News (September 29, 2010)

U.S.: Reporting of uncertain tax position finalized

The Internal Revenue Service (gIRSh) has made announcement on September 24, 2010, that it has finalized the corporate tax return schedule regarding Uncertain Tax Position (gUTPh), and together presented the schedule (Announcement2010-75). This finalized the UTP related disclosure requirement deliberated based on comments from various interested parties, which started from the Announcement2010-9 (ginitial proposalg) on January 26 of this year. In order to address the concerns of the commentators expressed on the initial proposal, some alleviations have been made in the finalized schedule as below.

Overview of the changes

(1) No Reporting of Maximum Tax Adjustment
One of the changes to address the concerns is the elimination of requirement to report maximum tax adjustment. Instead, the business taxpayers are required to disclose and rank their UTP from highest to lowest in the order of their magnitudes. The basis of the magnitude ranking is the amount of income tax liability to be recognized in accordance with the US Financial Accounting Standards Board (gFASBh) Interpretation 48 (hFIN48h) gAccounting for Uncertainty in Income Taxesh. However, disclosure requirement for the amount of maximum tax adjustment and the amount of tax reserve were both completely removed. This would be a relief to the US corporations who have expressed strong concerns to the burdens of computing maximum tax adjustment relating to UTP (different from the amount of reserve computed based on 50% possibility), and also were concerned that disclosing such information would provide misleading information to the authority and would lead to an unduly major tax correction.

(2) Establishing a Five-Year Phase-In Period
In the initial proposal, entities which have recognized tax liability relating to UTP in their financial reports, and with assets over $10 million were required to file Schedule UTP from 2010 tax years. However, in the finalized instruction, following changes have been made. First, the scope is limited to corporations issuing audited financial statements (or those with affiliates which have the tax positions of recognizing a tax liability in the audited financial reports). Also, the total asset threshold is eased and the starting period is extended so that the corporations with total assets of $100 million or more are required to file Schedule UTP starting 2010 tax years, corporations with total assets of $50 million or more and less than $100 million are required from 2012 tax years, and corporations with $10 million or more and less than $50 million are required from 2014 tax years.

(3) Removal of Requirement to Include Rationale of UTP
In the initial proposal, disclosure of rationale for UTP and the nature of uncertainty (ex. pointed out in the tax audit) were required. But in the finalized Schedule UTP, such disclosure requirements are removed and changed to just a concise description requirement, as it was criticized that these disclosures are not required by FIN48 and would unduly increase the administrative burden.


In the finalized Schedule UTP, burdens were eased to some extent by changes such as no reporting of amount, and extension of starting period for relatively small companies. However, disclosure of concise description is still necessary for every UTP, and the IRS will undoubtedly conduct more in-depth tax audit based on Schedule UTP. Especially, Schedule UTP requires to identify transfer pricing related items as gTh (for transfer pricing), and other items as gGh (for general) and to rank each of them (for example, T1, T2, G1). It is apparent that the IRS is very conscious about the transfer pricing issues. It is advised for those companies matching the asset threshold etc. and need to comply with the financial statement requirement consult with professionals especially before the initial submission. (For more detail, please check the IRS website.),,id=221533,00.html


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