Tax Blog/Blawg

As if the waters for small captive insurance arrangements hadn’t been muddied enough after Avrahami v. Commissioner, on June 18, 2018, the U.S. Tax Court issued the second opinion in a small captive case, Reserve Mechanical Corp. v. Commissioner, this time holding that the taxpayer’s participation in a risk pool failed to satisfy the risk distribution requirement (i.e., the sharing of a sufficient number of independent insurance risks so that no one claim can have too great an adverse financial effect on the insurer) to establish a bona fide insurance arrangement. Until this ...

Any corporate tax executive who has ever been involved in contesting an audit adjustment knows all too well how unfavorable documents relating to the subject of the adjustment – particularly improvident comments reflected in email correspondences – can be an ongoing impediment to resolving a tax dispute from the audit phase right up to and through litigation with the IRS or Department of Justice.  When such documents exist, even where taken out of context, the government will zealously sink its teeth into them like a junkyard dog, making the prospects of reaching a reasonable ...

TaxBlawg’s Guest Commentator, David L. Bernard, is the former Vice President of Taxes for Kimberly-Clark Corporation, a past president of the Tax Executives Institute, and a periodic contributor to TaxBlawg.

My last blog post suggested that the best defense against transfer pricing assessments is the adoption of a globally consistent transfer pricing policy supported by appropriate documentation. Near the conclusion of that post, I noted that the Competent Authority (CA) process and Advance Pricing Agreements (“APAs”) were tools that could be employed if your company faced transfer pricing adjustments.

Although the goal of your transfer pricing policy and related documentation is to manage risk and avoid tax assessments, the nature of the beast is such that there is no precise price one can pinpoint in transfer pricing matters that can completely eliminate the risk of a tax authority’s challenge. Rather, there is usually a range of potential prices that may be appropriate. A tax authority may be inclined to pick a price at the end of the range most favorable to its country from a revenue perspective, leaving the Chief Tax Officer (CTO) to consider a menu of potential remedies, including administrative appeals, litigation, APAs, or perhaps a request for CA assistance.

One of our readers recently emailed us with a question about the application of the new Schedule UTP to deferred tax assets.  The question is straightforward enough: must uncertain positions involving deferred tax assets be reported on Schedule UTP and, if so, when must they be reported?  The explanation, thanks to confusion created by several examples in the final Schedule UTP instructions, is anything but straightforward.  Let’s start with a little background.

TaxBlawg’s Guest Commentator, David L. Bernard, is the recently retired Vice President of Taxes for Kimberly-Clark Corporation, a past president of the Tax Executives Institute, and a periodic contributor to TaxBlawg.

As the IRS sifts through dozens of comment letters on the proposed disclosure of uncertain tax positions, in-house tax officers have to wonder what's next. Over the last decade, CTO's have been hit with a barrage of new demands and worries. We have seen the rise of FIN 48 (now ASC 740-10), Sarbanes-Oxley and the resulting increased focus on controls, increasingly burdensome quarterly and annual attest firm reviews, listed transactions disclosures, the electronic filing mandate (Everson's legacy), Schedule M-3, and now the still proposed UTP disclosure.

Notwithstanding the new challenges, the number one performance metric used to judge a tax department's performance is still the effective tax rate ("ETR"). CTO's and their staffs continue to be measured by their delivery on the ETR at a time when most at the IRS seem to believe that all tax planning is bad, outside counsel is becoming more cautious, attest firms are insisting to review opinions (thus jeopardizing privilege), budgets and head count have been cut and, oh by the way, "cash is king".

Tax Blawg’s Guest Commentator, David L. Bernard, is the recently retired Vice President of Taxes for Kimberly-Clark Corporation and a past president of the Tax Executives Institute.

It is not too soon for in-house tax professionals to be thinking about how the disclosure of uncertain tax positions (required beginning with 2010 tax returns) will change their lives and perhaps their historical practices.

There are plenty of questions about the new requirement and, not least among them, doubts that it will produce the results the IRS anticipates. The most obvious question is whether the potential over-disclosure of temporary differences and the required disclosure of maximum exposure by issue will bog down the audit process and lead to more unagreed issues going to Appeals or to the courts. Notwithstanding the controversy, tax professionals would be wise to forget arguing about the merits of the new draft requirement and begin thinking about their responses; this is going to happen!