Advancing Tax Administration June 19, 2014 Session 3: Tax Uncertainty and Corporation Compliance Moderator: John Guyton IRS, RAS, Office of Research Large Corporation Schedule M-3 Book-to-Tax Profiles of Schedule UTP (Uncertain Tax Position) Filers and Non-Filers: 2010 – 2011 Lisa Rupert IRS, Large Business & International Unintended Consequences of Linking Tax Return Disclosures of Tax Uncertainty to Financial Reporting for Tax Uncertainty Erin M. Towery University of Georgia The Effect of CAP on Tax Aggressiveness Andrew Duxbury University of Connecticut Discussant: Matt Smith Department of the Treasury, Office of Tax Analysis
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Advancing Tax Administration June 19, 2014
Session 3: Tax Uncertainty and Corporation Compliance
Moderator: John Guyton IRS, RAS, Office of Research
Large Corporation Schedule M-3 Book-to-Tax
Profiles of Schedule UTP (Uncertain Tax
Position) Filers and Non-Filers: 2010 – 2011
Lisa Rupert
IRS, Large Business & International
Unintended Consequences of Linking Tax
Return Disclosures of Tax Uncertainty to
Financial Reporting for Tax Uncertainty
Erin M. Towery
University of Georgia
The Effect of CAP on Tax Aggressiveness Andrew Duxbury
University of Connecticut
Discussant: Matt Smith Department of the Treasury,
Office of Tax Analysis
Schedule M-3 Profile of Schedule UTP Filers
and Non-filers
IRS Research Conference Extract
from Boynton-DeFilippes-Legel-
Rupert Paper on “Large Corporation
M-3 Profile of UTP Filers and Non-
filers for 2010-2011 Tax Years”
June 2014
THE OPINIONS EXPRESSED ARE THOSE OF THE
AUTHORS AND DO NOT NECESSARILY REPRESENT
POSITIONS OF THE U.S. DEPARTMENT OF THE
TREASURY OR THE INTERNAL REVENUE SERVICE.
3
Agenda
History of Schedule UTP and Background
2010 - 2011 M-3 Data for UTP Filers and Non-filers
2010 - 2011 UTP and M-3 Data Design
2010 - 2011 Summary
4
HISTORY OF SCHEDULE UTP AND
BACKGROUND
5
Schedule UTP Background
Introduced
In 2010 for corporations with assets of $100M or more with audited Financial
Statements (FS) reporting uncertain tax positions in the income tax footnote
and for certain related corporations
Purpose
To report some of the information from the FS income tax footnote
Goal
To increase transparency
Income Tax Footnote
Required by U.S. generally accepted accounting principles (GAAP) under
FAS 109 (ASC 740) and FIN 48 (ASC 740-10)
6
Schedule UTP Requirements
Schedule UTP requires taxpayers to report:
Positions that affect the U.S. federal income tax liabilities of certain
corporations that issue or are included in audited FS
Relevant code sections
A concise description of the issue(s)
Dollar amounts are NOT required
The corporate asset reporting threshold:
Assets of $100M or more in tax years 2010 and 2011
$50M or more in tax years 2012 and 2013
$10M or more in tax years ending December 31, 2014 or later
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Schedule UTP Reports the federal uncertain tax positions reserved on the FS with respect to items
on the tax return the IRS may challenge on audit
Generally relates to items reported on Schedule M-3 Parts II and III, tax credit
amounts, and international issues reported on Forms 1118, 5471s, 5472s, etc.
Schedule M-3 Part I reconciles worldwide consolidated book income to the book income reported
on the consolidated tax return
Parts II and III report the temporary and permanent adjustments from the various
book income and expense items to the income and expense amounts for tax
purposes
Schedule M-3 (M-3) and Schedule UTP (UTP) are complementary sources of
taxpayer information
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Schedule UTP Comparison with Schedule M-3
2010-2011 M-3 DATA FOR UTP FILERS AND
NON-FILERS
9
2010 (2011) M-3 Data for Form 1120 Corporations
40,740 (41,636) corporations in 2010 (2011)
12,044 (12,307) corporations have total assets of $100M and potentially subject to UTP
By FS Type
3,446 (3,370) with SEC 10K/Public FS
5,218 (5,396) with Audited FS
3,380 (3,540) are Unaudited
10
2010 and 2011 UTP Filers
All filers
2010 - 1,856 (15.4%) and 2011 - 2,074 (16.9%)
SEC 10K/Public corporations
2010 - 1,093 (31.7%) and 2011 - 1,227 (36.4%)
Audited corporations
2010 - 493 (9.4%) and 2011 - 535 (9.9%)
Unaudited corporations
2010 - 269 (8.0%) and 2011 - 311 (8.8%)
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UTP AND M-3 DATA DESIGN
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2010 - 2011 UTP and M-3 Data Design
2010 - 2011 UTP and M-3 Tables
Distinguish UTP filer versus UTP non-filer by FS types
• Non-filers include both those not required to file and those who fail to file
$100M or more in assets
Adjusted 2010 - 2011 M-3 Parts II and III Data
Seven specified versus other-differences categories
For book income, tax income, and Book-Tax-Difference (BTD)
amounts
By FS type (SEC 10K/Public, Audited, and Unaudited)
By the presence or absence of Schedule UTP
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Special Adjustments to Three M-3 Lines
Cost of Goods Sold (COGS) is adjusted to remove the cost of securities/commodities reported on Schedule A using SOI data
Other-income-items-with-differences is adjusted to remove Gross Receipts related to the COGS adjustment
Other-items-with-no-differences is adjusted to remove Gross Receipts related to the COGS adjustment
Other-items-with-no-differences is adjusted to remove expenses/deductions-with-no-differences creating two lines:
Adjusted Other income with no differences
Adjusted Other expense/deduction with no differences
14
2010 - 2011 SUMMARY TABLES:
COMPARISONS OF FS TYPES FOR UTP
FILERS AND NON-FILERS WITH
SIGNIFICANT M-3 BTD
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Categories in Summary Tables
By FS and UTP for filers and non-filers M-3 categories with BTD
• Adjusted COGS
• Specified Income
• Adjusted Other Income with differences
• Specified Expense/Deduction
• Adjusted Other Expense/Deduction with differences
Other items
• Pretax income
• Tax Net Income
• BTD
• Increase or Decrease to Taxable Income
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Notes for Summary Tables
UTP filers and non-filers with $100M or more in assets by FS
types
Significant BTD exceeding 1.5% of adjusted total book
income
BTD signs are positive and negative
Negative BTD reduce taxable income compared to book income
Table indicates significant BTD as T for Temporary and P for
Permanent
Red indicates negative BTDs and reductions in taxable
income
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Significant BTD Exceeding 1.5% of Adjusted Total Book Income for
Public Corporations
FS TYPE 2010 SEC 2011 SEC
Filer NonFiler Filer NonFiler
COGS -- +1.90T -- -1.54T
Spec Inc -2.99T -3.46P -2.02T --
Oth Inc -1.52P -2.89T -- --
SpecExp -- -1.94T -- -3.74T
Oth Exp -- -- -- --
Pretx Inc 17.88 16.75 17.82 12.04
Tax Inc 12.91 10.52 14.18 7.17
Total BTD -4.97 -6.23 -3.64 -4.87
Inc/Decr -27.8 -37.2 -20.4 -40.5
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Significant BTD Exceeding 1.5% of Adjusted Total Book Income for
Audited Corporations
FS TYPE 2010 Audited 2011 Audited
Filer NonFiler Filer NonFiler
COGS +2.17T -- +2.12T --
Spec Inc +1.67T
-1.95P
-- +1.57T
-2.31P
--
Oth Inc -2.72T -- -2.35T --
SpecExp +1.54P -1.61T -5.95T
+2.30P
-2.35T
Oth Exp +3.51T -- -- --
Pretx Inc 5.58 6.98 10.72 7.73
Tax Inc 9.21 4.90 5.70 4.05
Total BTD +3.63 -2.08 -5.03 -3.67
Inc/Decr +65.1 -29.8 -46.9 -47.6
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Significant BTD Exceeding 1.5% of Adjusted Total Book Income for