Schedule UTP - Uncertain Tax Position Disclosure Statement

Draft: 4/19/2010
Department of the Treasury
Internal Revenue Service

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Instructions for
Schedule UTP
Uncertain Tax Positions Statement
Use for Forms 1120, 1120-F, 1120-L, and 1120-PC
Section references are to the Internal Revenue Code unless otherwise noted.

General Instructions
Purpose of Schedule
Schedule UTP asks for information about tax positions that affect the United States federal income tax
liabilities of certain corporations that issue or are included in an audited financial statement and have
assets equal to or exceeding $10 million.

Reporting Uncertain Tax Positions on Schedule UTP
Tax positions to be reported. Schedule UTP requires the reporting of a corporation’s federal income
tax positions for which the corporation or a related party has recorded a reserve in an audited financial
statement. Schedule UTP also requires the reporting of tax positions taken by the corporation in a tax
return for which a reserve has not been recorded by the corporation or a related party based on an
expectation to litigate or an IRS administrative practice.
A tax position is required to be reported on a Schedule UTP attached to a particular tax year’s return if (a)
at least 60 days before filing the tax return a reserve has been recorded with respect to that tax position,
or at least 60 days before filing the tax return a decision was made not to record a reserve based on an
expectation to litigate or an IRS administrative practice, and (b) the tax position has been taken by the
corporation in a tax return for the current tax year or a prior tax year.
A tax position must be reported regardless of whether the audited financial statement is prepared based
on United States generally accepted accounting principles (GAAP), International Financial Reporting
Standards (IFRS), or other country-specific accounting standards, including a modified version of any of
the above (for example, modified GAAP) that requires a taxpayer to record a reserve for federal income
tax positions.
A tax position is based on the unit of account in the audited financial statements in which the reserve is
recorded. A tax position taken in a tax return means a tax position that would result in an adjustment to a
line item on that tax return if the position is not sustained. A line item on a tax return may be affected by
multiple units of account, in which case each unit of account must be reported separately on Schedule
UTP.

Reporting current year and prior year tax positions. Tax positions taken by the corporation in the
current year’s tax return for which the decision whether to record the reserve was made at least 60 days
before filing the tax return are reported on Part I. Tax positions taken by the corporation in a prior year’s
tax return for which the decision whether to record the reserve was made at least 60 days before filing the
tax return are reported on Part II. A corporation is not required to report a tax position it has taken in a
prior tax year if the corporation reported that tax position on a Schedule UTP filed with a prior year tax
return. If a transaction results in tax positions taken in more than one tax return (and a decision whether
to reserve has been made), the tax positions arising from the transaction must be reported on Part I of the
Schedule UTP attached to each tax return in which a tax position resulting from the transaction is taken
regardless of whether the transaction or a tax position resulting from the transaction was disclosed in a
Schedule UTP filed with a prior year’s tax return. See Example 6. Do not report a tax position on
Schedule UTP before the tax year in which the tax position is taken in a tax return by the corporation.
Determinations made within 60 days prior to filing the tax return. Tax positions for which a reserve
was recorded within 60 days before filing a tax return, or a decision not to record a reserve was made
during that same period based on an expectation to litigate or an IRS administrative practice, must be
reported either on Part I of the Schedule UTP for the current year or on Part II of the Schedule UTP for
the next tax year.
Concise description of tax position. A corporation that reports a tax position in either Part I or Part II is
required to provide a concise description of each tax position on Part III. See Examples 14, 15, and 16.
Transition rules. A corporation is not required to report on Schedule UTP a tax position taken in (a) a
tax year beginning before December 15, 2009, or (b) a tax year beginning on or after December 15, 2009,
and ending before January 1, 2010, regardless of whether or when a reserve was recorded with respect
to that tax position.
Electronic Filing. [RESERVED]

Who Must File
A corporation must file Schedule UTP with its income tax return if:
1. The corporation files Form 1120, U.S. Corporation Income Tax Return; Form 1120 F, U.S. Income
Tax Return of a Foreign Corporation; Form 1120 L, U.S. Life Insurance Company Income Tax Return; or
Form 1120 PC, U.S. Property and Casualty Insurance Company Income Tax Return;
2. The corporation has assets equal to or exceeding $10 million;
3. The corporation or a related party issued an audited financial statement and the audited financial
statement covers all or a portion of the corporation’s operations for all or a portion of the corporation’s tax
year; and
4. The corporation has one or more tax positions that must be reported on Schedule UTP.
A corporation’s assets equal or exceed $10 million if the amount reported on Part I, Box D of Form 1120,
or the higher of the beginning or end of year total assets amounts reported on Schedule L of Form 1120F, Form 1120-L, or Form 1120-PC, is at least $10 million.
Schedule UTP must accompany a tax return and should not be filed separately. A taxpayer that files a
protective Form 1120, 1120 F, 1120 L, or 1120 PC must file Schedule UTP if it satisfies the requirements
set forth above.
Affiliated groups. An affiliated group of corporations filing a consolidated return will file a Schedule UTP
for the affiliated group. The affiliated group need not identify the member of the group to which the tax
position relates or which member recorded the reserve for the tax position. Any affiliate that files
separately and satisfies the requirements set forth above must file a Schedule UTP with its return setting
forth its own tax positions.

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Definitions
Audited financial statement. An audited financial statement means a financial statement that an
independent third party expresses an opinion on under GAAP, IFRS, or another country-specific
accounting standard, including a modified version of any of the above (for example, modified GAAP) that
requires a taxpayer to record a reserve for federal income tax positions.
Record a reserve. In general, a corporation or a related party records a reserve with respect to a tax
position taken by the corporation when any of the following occurs in an audited financial statement of the
corporation or a related party:
1. An increase in a liability for income taxes payable or a reduction of an income tax refund receivable
with respect to the tax position,
2. A reduction in a deferred tax asset or an increase in a deferred tax liability with respect to the tax
position, or
3. Both (1) and (2) above.
The initial recording of a reserve will trigger reporting of a tax position, but subsequent reserve increases
or decreases with respect to a tax position taken in a tax return will not.
Examples - All examples assume the corporation is a calendar year taxpayer
Example 1 (general rule regarding recording a reserve). A corporation has an investment in a partnership
and receives a Form 1065 Schedule K-1 from the partnership stating the corporation’s share of ordinary
income is $100. The partnership took a tax position in its 2010 tax return that resulted in the exclusion of
$20 of income reported on the corporation’s Schedule K-1. The corporation excluded the $20 of income
from its 2010 tax return, and on September 30, 2010, the corporation recorded a reserve with respect to
this tax position taken in the 2010 tax return. Because the corporation recorded a reserve for the tax
position taken in the 2010 tax year more than 60 days before filing its tax return for the 2010 tax year, the
corporation must report the tax position on the Schedule UTP filed with its 2010 tax return.
Example 2 (reserve increase). A corporation took a tax position in its 2010 tax return and recorded a
reserve for the tax position on September 30, 2010. On December 31, 2012, the corporation increased
its reserve with respect to the tax position taken in its 2010 tax return. Because the corporation recorded
a reserve with respect to its 2010 tax position more than 60 days before filing its 2010 tax return, the
corporation must report the 2010 tax position on the Schedule UTP filed with its 2010 tax return. The
taxpayer is not required to report the 2010 tax position again on its 2012 tax return as a result of the
reserve increase in 2012.
Related party. A related party is any entity that is related to the corporation under sections 267(b),
318(a), or 707(b), or any entity that is included in a consolidated audited financial statement in which the
corporation is also included.
Examples - All examples assume the corporation is a calendar year taxpayer.
Example 3 (related party general rule). Corporation A is a corporation filing Form 1120 with $20 million of
assets. Corporation B is a foreign corporation not doing business in the United States and is related party
to Corporation A. Corporations A and B issue their own audited financial statements. If Corporation A
has taken a tax position in a tax return, but does not record a reserve with respect to that tax position in
its own audited financial statements, that tax position must be reported by Corporation A on its Schedule
UTP if the audited financial statements of Corporation B include a reserve with respect to that tax
position.
Example 4 (reserve recorded in consolidated financial statement). Corporation C files a Form 1120 and
has assets of $20 million. Corporations C and D issue a consolidated audited financial statement, but

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they do not file a consolidated tax return. Corporation C has taken a tax position for which a reserve was
recorded in the consolidated financial statements of Corporations C and D. The tax position taken by
Corporation C on its tax return must be reported on its Schedule UTP because a reserve was recorded
for its tax position in a consolidated financial statement in which Corporation C was included.
Reserve not recorded based on administrative practice. A tax position required to be reported on
Schedule UTP includes a tax position for which a reserve would have been recorded in the audited
financial statement but for a determination that, based upon past administrative practices and precedents
of the IRS in dealing with the tax position of the taxpayer or similar taxpayers, the IRS has a practice of
not challenging the tax position during an examination.
Reserve not recorded based on expectation to litigate. A tax position required to be reported on
Schedule UTP includes a tax position for which a reserve was not recorded in the audited financial
statement after the taxpayer or a related party determines that, if the IRS had full knowledge of the tax
position it is unlikely a settlement could be reached. For this purpose, a settlement is unlikely if the
probability of settlement is less than 50%.
Example 5 (expectation to litigate). A corporation takes a position that it can exclude certain income from
its 2010 tax return. On September 30, 2010, the corporation determines that, if the IRS had full
knowledge of the tax position, there is less than a 50% probability of settling the issue with the IRS. The
corporation also determines that, if the tax position were litigated, it has a 60% probability of prevailing in
the litigation. Based upon these determinations, the corporation did not record a reserve for the tax
position. Because the corporation made a decision not to record a reserve with respect to its 2010 tax
position based on a determination, consistent with applicable accounting standards, that it will litigate,
rather than settle, the issue with the IRS and that the corporation will prevail in the litigation, and because
that decision was made more than 60 days before filing its 2010 tax return, the corporation must report
this tax position on the Schedule UTP filed with its 2010 tax return.
Tax position taken in a tax return. A tax position taken in a tax return means a tax position that would
result in an adjustment to a line item on that tax return (or would be included in a section 481(a)
adjustment) if the position is not sustained.
Examples - All examples assume the corporation is a calendar year taxpayer
Example 6 (permanent differences). A corporation incurs an expenditure in its 2010 tax year and takes
the position that the expenditure may be amortized over 5 years beginning in its 2010 tax return. The
corporation determines it is uncertain whether any current deduction or amortization of this expenditure is
allowable. The corporation has taken a tax position in each of the 5 tax years because in each year’s tax
return there would be an adjustment to a line item on that return if the position taken in that year is not
sustained.
Example 7 (temporary difference). A corporation incurs an expenditure in its 2010 tax year and claims a
deduction for the entire amount on its 2010 tax return. The corporation determines it is uncertain whether
the deduction is allowable in the 2010 tax year or the amount instead is amortizable over 5 years. The
corporation has taken a tax position in each of the 5 years, even though it claimed a deduction in a single
year, because in each year’s tax return there would be an adjustment to a line item on that return if the
position taken in that year is not sustained.
Example 8 (use of expiring net operating loss carryforward). A corporation has a $100 net operating loss
carryforward that will expire unless it is used in the 2010 tax year. The corporation reports $100 of
income in 2010 but is uncertain whether the income should be reported in 2010 or 2011. The corporation
has taken a tax position in each of its 2010 and 2011 tax returns because in each return there would be
an adjustment to a line item on that return if the position taken in that year is not sustained.

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Whether any of the tax positions taken in Examples 6, 7, or 8 must be reported on Schedule UTP in a
particular tax year depends upon whether a reserve is recorded in an audited financial statement or is not
recorded because of an expectation to litigate or an IRS administrative practice.
Unit of account. A unit of account is the level of detail used in analyzing a tax position, taking into
account both the level at which the taxpayer accumulates the information to support the tax return and the
level at which the taxpayer anticipates addressing the issue with the IRS. The unit of account used by a
GAAP or modified GAAP taxpayer for reporting a tax position on Schedule UTP must be the same unit of
account used by the taxpayer for GAAP or modified GAAP. In the case of audited financial statements
prepared under other accounting standards, a unit of account based on an entire tax year or entire
income tax return for a tax year may not be used as the basis for determining a tax position to be reported
on Schedule UTP, even if that is the level of detail used for other applicable accounting standards, such
as IFRS. In such cases, a unit of account that may be used as the basis for determining a tax position to
be reported on Schedule UTP is any level of detail that is consistently applied and reasonably based on
the items of income, gain, loss, deduction or credit.

How to Calculate Maximum Tax Adjustment (MTA)
General. The MTA for a tax position taken in a tax return is an estimate of the maximum amount of
potential United States federal income tax liability associated with the tax year for which the tax position
was taken. The MTA is determined on an annual basis. For tax positions that relate to items of income,
gain, loss, and deduction, estimate the total amount in dollars and multiply by 0.35 (35%). For items of
credit, estimate the total amount of credit in dollars. Combine the dollar estimates related to all applicable
items of income, gain, loss, deduction, and credit to determine the MTA of that tax position. For example,
the MTA for a tax position taken in a tax return claiming a $100 deduction is $100 x 0.35 or $35. The
MTA for a tax position taken in a tax return claiming a $50 credit is $50.
The MTA does not include interest or penalties. The effects of a tax position on state, local, or foreign
taxes are disregarded when computing the MTA.
Each item of income, gain, loss, deduction or credit relating to a tax position taken in a tax return is
determined separately and may only be offset by other such items relating to that tax position. For
example, if a $100 deduction is associated with a tax position taken in a tax return, enter $35 on
Schedule UTP, even if that deduction is used to offset $100 of income generated by general operations of
the business. Likewise, if $200 of income is associated with a tax position taken in a tax return, enter $70
[($200 x 0.35)] on Schedule UTP, even if the $200 of income was offset by $200 of net operating losses.
Items of income, gain, loss, deduction, or credit associated with a tax position may offset each other in
determining the MTA for that tax position. For example, if income of $100 is associated with a tax
position taken in a tax return and a deduction of $300 is associated with that same tax position, then the
MTA is $70 [($300 - $100) x 0.35].
Affiliated groups. The determination of the MTA for a tax position taken in a tax return by an affiliated
group is to be determined at the affiliated group level and must take into account all items of income,
gain, loss, deduction, or credit with respect to that tax position for all members of the affiliated group.
Determination of MTA for valuation and transfer pricing tax positions. A determination of a
maximum tax adjustment amount is not required for valuation or transfer pricing tax positions. Instead,
the MTA reporting requirement is satisfied by indicating whether the tax position is a valuation or a
transfer pricing tax position and by providing a ranking of these tax positions based on either the amount
recorded as a reserve for United States federal income tax for that tax position taken in the tax return, or
the estimated adjustment to United States federal income tax that would result if the tax position taken in
the tax return is not sustained. For tax positions that relate to items of income, gain, loss, and deduction,
estimate the total amount in dollars and multiply by 0.35 (35%). The corporation may choose either
method and is not required to describe the method chosen or report the reserve or adjustment amounts
for the reported positions. The method selected must be consistently applied to all valuation tax positions
and transfer pricing tax positions reported on this schedule. The rankings should be done separately for

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the valuation tax positions and the transfer pricing tax positions. See Specific Instructions to Parts I and
II, Column F.

Coordination with Other Reporting Requirements
A complete and accurate disclosure of a tax position on the appropriate year’s Schedule UTP will be
treated as if the corporation filed a Form 8275, Disclosure Statement, or Form 8275-R, Regulation
Disclosure Statement, regarding the tax position. A separate Form 8275 or Form 8275-R need not be
filed to avoid penalties with respect to that tax position.
Other disclosures and penalties. [RESERVED]

Comprehensive Examples
All examples assume the corporation is a calendar year taxpayer
Example 9 (temporary difference). A corporation incurs an expenditure in 2010 and claims the entire
amount as a deduction on its 2010 return. On September 30, 2010, the corporation determines it is
uncertain whether the expenditure should instead be amortized over 5 years and records a reserve with
respect to the position taken in 2010. The corporation did not record a reserve for any of the positions
taken in tax years 2011 through 2014. The corporation has taken a tax position in each of the 5 tax years
because in each year’s tax return there would be an adjustment to a line item on that return if the position
taken in that year is not sustained. The tax position taken in the 2010 tax year must be reported on Part I
of Schedule UTP filed with the 2010 tax return because a reserve was recorded with respect to the tax
position more than 60 days before filing that return. None of the 2011 to 2014 tax positions must be
reported on Schedule UTP because the corporation did not record a reserve with respect to any of those
tax positions.
Example 10 (permanent differences). A corporation incurs an expenditure in 2010 and takes the position
that the expenditure may be amortized over 5 years beginning in its 2010 tax return. The corporation
determines it is uncertain whether any deduction or amortization of this expenditure is allowable. On
September 30 of each year beginning in 2010, the corporation records a reserve with respect to the
amortization deduction claimed in each tax year. The corporation has taken a tax position in each of the
5 tax years because in each year’s tax return there would be an adjustment to a line item on that return if
the position taken in that year is not sustained. Because the corporation recorded a reserve for the 2010
tax position more than 60 days before filing the 2010 tax return, the corporation must report the 2010 tax
position on Part I of Schedule UTP for the 2010 tax year. In addition, because the corporation recorded a
reserve more than 60 days before filing its tax returns for tax years 2011 through 2014, the tax position
taken in each of those tax years must be reported on Part I of the Schedule UTP filed with the tax return
for the respective tax year in which the tax position was taken.
Example 11 (transition rule). The facts are the same as in Example 10, except that the corporation
incurred the expenditure and recorded the reserve in 2009. The corporation has taken a tax position in
each of the 5 tax years (2009 through 2013) because in each year’s tax return there would be an
adjustment to a line item on that return if the position taken in that year is not sustained. However, the
corporation should not report the tax position taken in the 2009 tax year because it was taken in a tax
year beginning before December 15, 2009. Because the corporation recorded a reserve more than 60
days before filing its tax returns for tax years 2010 through 2013, the tax position taken in each of those
tax years must be reported on Part I of the Schedule UTP filed with the tax return for the respective tax
year in which the position was taken.

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The following chart illustrates when and how to report tax positions on Schedule UTP.
Tax year
position is
taken

Date next tax return is
filed after determination
whether to take reserve

2011

Date of
determination
whether to take
reserve
12/1/2011

9/15/2012

Tax return to
which
Schedule UTP
is attached
2011

Part of Schedule
UTP on which tax
position is
reported
I

2011

5/1/2012

9/15/2012

2011

2011

8/6/2012

9/15/2012

2011 or 2012

2011

5/1/2013

9/15/2013

2012

I
I (if 2011) or
II (if 2012)
II

Specific Instructions for Part I
Part I Uncertain Tax Positions For the Current Tax Year
When to Complete Part I
Part I is used to report tax positions taken by the corporation in the current year’s tax return.
All examples assume the corporation is a calendar year taxpayer
Example 12. On February 15, 2011, a corporation records a reserve relating to a tax position taken in its
tax return for the 2010 tax year. The corporation files its 2010 tax return on September 15, 2011.
Because the reserve for the 2010 tax position was recorded at least 60 days before filing the 2010 return,
the corporation must report the 2010 tax position on Part I of Schedule UTP filed with its 2010 tax return.
Example 13. A corporation incurs a $50 expenditure in 2010 and claims the entire amount as a deduction
on its 2010 tax return. The deduction increases the corporation’s net operating loss carryforward from
$100 to $150. The corporation uses the entire $150 net operating loss carryforward in its 2011 tax return.
Claiming the $50 deduction in 2010 is a tax position taken in the 2010 tax year because the position
would result in an adjustment to a line item on the 2010 tax return if the position is not sustained. The
deduction in 2011 of the net operating loss carried forward from 2010 is a 2011 tax position, because the
position would result in an adjustment to a line item on the 2011 tax return if the position is not sustained.
The corporation did not record a reserve with respect to its 2010 tax position, but did record a reserve on
September 30, 2011, with respect to its 2011 tax position. Because the corporation did not record a
reserve with respect to the tax position taken in 2010, the 2010 tax position is not required to be reported
on Schedule UTP. However, because the corporation recorded the reserve for the 2011 tax position
more than 60 days before filing its 2011 tax return, the 2011 tax position must be reported on Part I of
Schedule UTP filed with the tax return for the 2011 tax year.
Information From Related Parties
Check the box if the corporation was unable to obtain sufficient information from one or more related
parties and was therefore unable to determine whether a tax position taken in the current year’s tax return
is required to be reported on Part I of this schedule.
Column A. UTP Number
Enter a number in column A for each tax position listed in this Part. This number will be used on Part III
for reporting the concise description of the tax position. Begin with the number 1 and do not skip any
whole numbers.
Column B. Primary IRC Sections
Provide the primary IRC sections (up to three) relating to the tax position.

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Column C. Timing Codes
Check T for temporary differences, P for permanent differences, or check both T and P for a tax position
that creates both a temporary and permanent difference. Categorization as a temporary difference,
permanent difference, or both must be consistent with the accounting standards used to prepare the
audited financial statements.
Column D. Pass-Through Entity EIN
If the tax position taken by the corporation relates to a tax position of a pass-through entity, enter the EIN
of the pass-through entity to which the tax position relates. For example, if the corporation is a partner in
a partnership and the tax position involves the partner’s distributive share of an item of income, gain, loss,
deduction, or credit of the partnership, enter the EIN of the partnership. A pass-through entity is any
entity listed in section 1(h)(10). If the tax position is not related to a tax position of a pass-through entity,
leave this blank. Enter F if the pass-through entity is a foreign entity that does not have an EIN.
Column E. Administrative Practice
Check this box if the tax position must be reported because it was determined the IRS would not
challenge the position upon examination based on IRS administrative practice.
Column F. Maximum Tax Adjustment
Enter the maximum tax adjustment amount for each tax position that is not a valuation tax position or a
transfer pricing tax position. If the tax position is a valuation tax position, enter V for valuation followed by
a number representing the ranking of the tax position within all reported valuation tax positions (e.g., V1).
If the tax position is a transfer pricing tax position, enter TP for transfer pricing followed by a number
representing the ranking of the tax position within all reported transfer pricing tax positions (e.g., TP1).
Begin with the number 1 for the tax position with the largest estimated potential tax adjustment or, if
applicable, the largest reserve, and do not skip any whole numbers.

Specific Instructions for Part II [This section will not be completed in 2010]
Part II Uncertain Tax Positions For Prior Tax Years
When to Complete Part II
Part II is used to report tax positions taken by the corporation in a prior tax year that have not been
reported on a Schedule UTP filed with a prior year’s tax return.
Information From Related Parties
Check this box if the corporation was unable to obtain sufficient information from one or more related
parties and was therefore unable to determine whether a tax position taken in a prior year’s tax return is
required to be reported on Part II of this schedule.
Column A. UTP Number
Continue the numeric sequence based on the last UTP number entered on Part I. For example, if the last
UTP listed on Part I is 10, enter 11 for the first UTP listed on Part II. Assign a new number to each tax
position that is listed in Column G.
Column B. Primary IRC Sections
Refer to the instructions for Part I Column B.
Column C. Timing Codes
Refer to the instructions for Part I Column C.
Column D. Pass-Through Entity EIN
Refer to the instructions for Part I Column D.

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Column E. Administrative Practice
Refer to the instructions for Part I Column E.
Column F. Maximum Tax Adjustment
Refer to the instructions for Part I Column F.
Column G. Year of Tax Position
List the prior tax year in which the tax position was taken and the last month of that tax year, using a sixdigit number. For example, enter 201012 for tax years ending December 31, 2010, and 201108 for tax
years ending August 2011.

Specific Instructions for Part III
Part III Concise Description of Uncertain Tax Positions
When to Complete Part III
Part III must be completed for every tax position listed in either Part I or II. Enter the corresponding UTP
number from Part I or Part II related to the description.
Provide a concise description of the tax position, including information that reasonably can be expected to
apprise the IRS of the identity of the tax position and the nature of the uncertainty. The description must
include a statement that the position involves an item of income, gain, loss, deduction, or credit against
tax; a statement whether the position involves a determination of the value of any property or right or a
computation of basis; and the rationale for the position and the reasons for determining the position is
uncertain. In most cases, the description should not exceed a few sentences.
Examples of concise descriptions
Example 14. The corporation investigated and negotiated several potential business acquisitions during
the tax year. One of the transactions was completed during the tax year, but all other negotiations failed
and the other potential transactions were abandoned during the tax year. The corporation deducted costs
of investigating and partially negotiating potential business acquisitions that were not completed, and
capitalized costs allocable to one business acquisition that was completed. The issue is the allocation of
costs between failed acquisitions and the successful acquisition.
Example 15. The corporation entered into a loan transaction in which it made a general pledge of its
assets to its lender. The corporation’s assets include stock of FSub, a wholly-owned foreign subsidiary.
FSub reports no earnings and profits for U.S. federal income tax purposes based on its treatment of an
item of income that defers income recognition to a later year. The corporation has taken the position that
the pledge of FSub stock did not result in an investment in U.S. property under section 956. The issue is
whether there was an investment in U.S. property causing a deemed distribution of FSub earnings to the
corporation as a result of the treatment of an item of FSub’s income that defers its recognition.
Example 16. The corporation received a cash distribution from Venture LLC (Venture LLC is treated as a
U.S. partnership for tax purposes). The corporation claims the distribution is not taxable because it did
not exceed the corporation’s basis in its interest in Venture LLC. The issue concerns (1) the computation
of basis in the Venture LLC interest, and (2) the application of the disguised sale and partnership antiabuse rules of Subchapter K and regulations thereunder to recharacterize the transaction as other than a
distribution.

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