Presenting a live 110 ‐ minute webinar with interactive Q&A Reporting Uncertain Tax Positions: Adjusting to the IRS' New Direction Preparing for Latest Schedule UTP Timetable, Protected Materials Policy and Tax Risk Management THURS DAY, DECEMBER 2, 2010 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f Phillip A. Pillar, S hareholder, Greenberg Traurig , Washington, D.C. S cott Balestrier, Tax Partner, BDO USA, Philadelphia Marla Miller S Marla Miller, S enior Manager BDO USA LLP Philadelphia enior Manager, BDO USA, LLP , Philadelphia The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Reporting Uncertain Tax Positions: Adjusting To The IRS’ New Direction Adj ti T Th IRS’ N Di ti Webinar Dec. 2, 2010 S cott Balestrier, BDO US A Phillip Pillar, Greenberg Traurig sbalestrier@ bdo.com pillarp@ gtlaw.com Marla Miller, BDO US A mmiller@ bdo.com
Today’s Program Brief History Of S chedule UTP And IRS Policy Of Restraint S lide 6 – S lide 10 [S cot t Balest rier, Phillip Pillar] Review Of S chedule UTP And Instructions S lide 11– S lide 16 [S cot t Balest rier, Marla Miller] Announcement 2010-76 And IRS Policy Of Restraint S lide 17 – S lide 28 [Phillip Pillar] Managing The Impacts S lide 29 – S lide 30 [S cot t Balest rier, Marla Miller] S lide 31 – S lide 32 Issues And Challenges [Phillip Pillar, S cot t Balest rier, Marla Miller]
S Scott Balestrier, BDO USA B l i BDO USA Phillip Pillar, Greenberg Traurig BRIEF HISTORY OF SCHEDULE BRIEF HISTORY OF SCHEDULE UTP AND IRS POLICY OF RESTRAINT
FIN 48/ACS 740 FIN 48/ACS 740 • Historical Perspective – FAS 5 vs. FIN 48 – Fully implemented Fully implemented • What did companies focus on in implementation (starting point for Schedule UTP) for Schedule UTP) – Permanent differences – Temporary differences – Foreign items – State items 7
FIN 48/ACS 740 (Cont.) FIN 48/ACS 740 (Cont.) • Impact on Schedule UTP – Disclosures Disclosures – Revisit by audit firms – Calculations 8
IRS Policy On Tax Accrual W Workpapers: A Brief History k A B i f Hi t • IRS definition of tax accrual workpapers • • IRS can obtain tax accrual workpapers United States v Arthur IRS can obtain tax accrual workpapers. United States v. Arthur Young & Co. (auditor’s workpapers) • IRS’ pre-2002 policy: Voluntary restraint with procedural safeguards; “unusual circumstances” 9
IRS Policy On Tax Accrual W Workpapers: A Brief History (Cont.) k A B i f Hi t (C t ) • IRS’ current policy: IRS will routinely request all tax accrual workpapers if either: – A so-called “listed transaction” is not properly disclosed on A so called listed transaction is not properly disclosed on a return, or – Tax benefits from multiple listed transactions are claimed on the return regardless of whether or not they are on the return, regardless of whether or not they are disclosed. • A Announcement 2010-76 t 2010 76 10 10
Scott Balestrier BDO USA Scott Balestrier, BDO USA Marla Miller, BDO USA REVIEW OF SCHEDULE UTP REVIEW OF SCHEDULE UTP AND INSTRUCTIONS
Who Must File Schedule UTP Who Must File Schedule UTP • Files one of the following forms: - Form 1120 (U.S. Corporation Income Tax Return) ( p ) - Form 1120F (U.S. Income Tax Return of a Foreign Corporation) - Form 1120L (U.S. Life Insurance Company Income Tax Return) - Form 1120 PC (U.S. Property and Casualty Insurance Company Income Tax Return) • Has assets equal to or exceeding: - $100 million (TY 2010) - $50 million (TY2012) $50 illi (TY2012) - $10 million (TY 2014) • Issued (or a related party issued) audited financial statements (U.S. GAAP and IFRS) that cover all or a portion of the company’s GAAP and IFRS) that cover all or a portion of the company s operations for all or a portion of the company’s tax year • Has one or more tax positions that must be reported on Schedule UTP 12
Tax Positions Required T To Be Reported B R t d • Reporting is required for each U.S. federal income tax position taken, if the following two conditions are met: – The corporation or a related party has taken a tax position on its U.S. federal income tax return for the current year or a prior tax year, and – Either the corporation or a related party has recorded a reserve with respect to the tax position for U.S. federal income tax in audited financial statements, or the corporation or related party did not record a reserve for that tax position because it expects to litigate the position. 13
Tax Positions Taken On The Return Tax Positions Taken On The Return • A tax position is based on the unit of account used to prepare the audited financial statement. • Defined as a tax position that would result in an adjustment to a line item on the tax return if the position was not sustained • If multiple tax positions affect a single line item on the tax return, you should report each tax position separately on the Schedule UTP Schedule UTP. 14
Schedule UTP Requirements Schedule UTP Requirements • Primary IRS code section • Timing codes • Pass-through entity EIN • Major tax position - If size of the tax position is greater than or equal 10% of p g q the aggregate of all tax positions reported on the schedule - Size is equal to the amount of the U.S. federal income tax reserve recorded for that position (excludes expectation to p ( p litigate positions) - Reserves recorded for multiple tax positions must be reasonably allocated among those tax positions when y g p determining the size of each tax position. • Ranking – Instructions vs. Announcement 2010-75 • Transfer pricing or other Transfer pricing or other 15
Concise Description Concise Description • Description of the relevant facts affecting the tax treatment of the position and information that reasonably can be expected the position and information that reasonably can be expected to identify the tax position and the nature of the issue • B Based upon/consistent with information required on Form d / i t t ith i f ti i d F 8275 • Description should not include: – An assessment of the hazards of a tax position – The rationale for the UTP or the nature of the uncertainty – An analysis of the support for or against the tax position 16
Phillip Pillar, Greenberg Traurig ANNOUNCEMENT 2010 ‐ 76 AND 7 IRS POLICY OF RESTRAINT
Announcement 2010-76 Announcement 2010 76 • In connection with Schedule UTP, IRS modifies its policy of restraint. • If privileged document given to independent auditor for financial statement audit, privilege is not waived. • Tax reconciliation workpapers regarding UTP may be redacted. 18
Announcement 2010-76 (Cont.) Announcement 2010 76 (Cont.) • Modified policy does not apply if: – Privilege waived – Unusual circumstances or listed transactions Unusual circumstances or listed transactions • Privilege waiver? • IRS policy: Effect on litigation? 19
Privileges In Tax Advice g • • What privileges may protect tax advice? What privileges may protect tax advice? – Attorney-client privilege – Work-product doctrine Work product doctrine – IRC Sect. 7525 • Some common misconceptions about privileges p p g – What is protected – Who is protected 20 20
“Tax Accrual Workpapers” Vs. “Tax Advice” V “T Ad i ” • Tax advice: Prepared for client by tax advisor in contexts such as a transaction closing, tax return reporting position, penalty protection, or in anticipation of litigation and governed by Circular 230 standards • Tax accrual (or audit) workpapers: Prepared by company T l ( dit) k P d b and reviewed for audited financials (or by auditor) and governed by FASB audit standards 21 21
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