Schedule UTP: An Insider's Summary of the Background, Key Concepts, and Major Issues

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A former IRS Commissioner has called Schedule UTP “the biggest change in tax administration in the last 50 years”. Others have made less flattering comments, but most everyone working in the corporate tax community would admit it has been a big deal. Based upon the author’s perception as a senior IRS official, this article is intended to be a comprehensive discussion of three topics. First, it will summarize the author’s perception of what led the IRS to require the filing of Schedule UTP. Second, it will discuss the key concepts, including why certain provisions were adopted (e.g., the much misunderstood “expect to litigate” provision). And finally, there will be a discussion of the major issues, including in some cases the author’s views on such issues. The article is written for several audiences, including: (i) corporate tax professionals who already have a working knowledge of Schedule UTP and should be most interested in the discussion of major issues and possibly the theory behind the “expect to litigate” provision; (ii) students and academics who should be interested in the entire article; and finally (iii) government officials who should be interested in techniques corporations may use to avoid disclosure, the definition of “reserve”, whether Schedule M-3 should be modified, and several other sections. DRAFT Please do not cite without author’s permission. Comments are welcome. 1 Schedule UTP: An Insider’s Summary of the Background, Key Concepts, and Major Issues By J. Richard (Dick) Harvey, Jr. * Abstract A former IRS Commissioner has called Schedule UTP “the biggest change in tax administration in the last 50 years”. Others have made less flattering comments, but most everyone working in the corporate tax community would admit it has been a big deal. Based upon the author’s perception as a senior IRS official, this article is intended to be a comprehensive discussion of three topics. First, it will summarize what led the IRS to require the filing of Schedule UTP. Second, it will discuss the key concepts, including why certain provisions were adopted (e.g., the much misunderstood “expect to litigate” provision). And finally, there will be a discussion of the major issues, including in some cases the author’s views on such issues. The article is written for several audiences, including: (i) corporate tax professionals who already have a working knowledge of Schedule UTP and should be most interested in the discussion of major issues and possibly the theory behind the “expect to litigate” provision; (ii) students and academics who should be interested in the entire article; and finally (iii) government officials who should be interested in techniques corporations may use to avoid disclosure, the definition of “reserve”, whether Schedule M-3 should be modified, and several other sections. A former IRS Commissioner has called Schedule UTP “the biggest change in tax administration in the last 50 years”. Others have made less flattering comments, but most everyone working in the corporate tax community would admit it has been a big deal. Based upon the author’s perception as a senior IRS official, this article is intended to be a comprehensive discussion of three topics. First, it will summarize what led the IRS to require the filing of Schedule UTP. Second, it will discuss the key concepts, including why certain provisions were adopted (e.g., the much misunderstood “expect to litigate” provision). And finally, there will be a discussion of the major issues, including in some cases the author’s views on such issues. The article is written for several audiences, including: (i) corporate tax professionals who already have a working knowledge of Schedule UTP and should be most interested in the discussion of major issues and possibly the theory behind the “expect to litigate” provision; (ii) students and academics who should be interested in the entire article; and finally (iii) government officials who should be interested in techniques corporations may use to avoid disclosure, the definition of “reserve”, whether Schedule M-3 should be modified, and several other sections. * Copyright 2011 by J. Richard (Dick) Harvey, Jr.. Date of article is March 1, 2011. The article is scheduled for publication in the 2011 Spring edition of the DePaul University Business and Commerce Journal. Since August 2010 the author has been the Distinguished Professor of Practice at the Villanova University School of Law and Graduate Tax Program (rharvey@law.villanova.edu). Immediately prior to joining the Villanova faculty he was the Senior Advisor to IRS Commissioner Shulman and worked extensively on the development of Schedule UTP, offshore tax evasion, and other international projects. Professor Harvey joined the IRS upon retiring from PricewaterhouseCoopers (PwC) as Tax Partner and Leader of PwC’s US Banking and Capital Markets Tax Practice. While at PwC, he specialized in FIN 48 with clients and consulted with the FASB during its development. Professor Harvey also served in the US Treasury Department’s Office of Tax Policy during the drafting and implementation of the 1986 Tax Reform Act. DRAFT Please do not cite without author’s permission. Comments are welcome. 2 Schedule UTP – An Insider’s Summary of the Background, Key Concepts, and Major Issues