leveraging technology and resources in a new age of tax jarvis l. bomar jefferson wells

Confidential and Proprietary

Leveraging Technology and Resources

in a New Age of Tax

Jarvis L. Bomar

Jefferson Wells

Nebraska/Missouri/Kansas Region

May 22, 2007


Tax Function Responsibilities

• BEFORE– Administration –

• Budgeting – Internal/External expenditures• Forecasting – ETR focus• Reporting• Recruiting• People management & development

– Compliance• Income tax• Sales & Use Tax• Property Tax• International reporting

– Provision– Examinations– Planning


Tax Function Responsibilities

• AFTER – All of the same things, PLUS:

– FIN48 (Reporting of uncertain tax positions)

– FAS123r (Equity based compensation)

– E-filing

– Schedule M-3

– SOX-404 documentation & remediation

– Listed transactions disclosures


What’s Changed??

BEFORE Post-SOXPlanning focus Compliance focus

Stand alone tax department Integrated accounting/operations

Estimates widely used Use estimates in only limited and supportable situations (Possibly at quarters, but rejuvenated interest in treatment of discrete items)

Income Statement focus (Is tax expense correct)

Focus on balance sheet (Are balances correct - Expense is whatever is necessary to get there)

Low risk perceived to exist in tax accounts.

Perceived risk increasing

Compliance reporting Process controls reporting

Risk awareness Risk management

Processes/Documentation “ad hoc” Increasing emphasis on process/controls/documentation

Tax shelters/aggressive strategies widely used

Tax shelters reduced/eliminated


Forces driving corporate tax activities

• Governance Forces– Sarbanes-Oxley Compliance

• More work around documentation

– Auditor Independence – more work that can’t be done by auditors– Reaction to corporate scandal and ethics violations

• Backdating concerns (409A/162m/123r) – more work for tax department• Reserve manipulation – more work for tax department around FIN48

– Increased transparency• More work to provide more detail• FIN48 challenges to “transparency” – reduction of DTAs seems contrary –

more work to track gross and net numbers

– Financial statement accuracy• More work because estimates no longer acceptable


Forces driving corporate tax activities (continued)

• Economic Forces– Do more with less– Increased IRS auditor aggressiveness due to

government enforcement initiatives– Expensive services and inflexible business

models– Increasing legal entities


Challenge

• How do I get the speed and certainty with these Forces at work? This job is no longer possible…

VP Tax at a Fortune 100 Company


Solutions

• No magic bullet• Focus Areas

– Tax department structuring trends– Tax department priorities– FIN48 efficiencies– FAS109 software– Spreadsheet controls– FAS123r software– Corporate Tax Platforms– Resource solutions


Tax department structuring

• Segregation of functional responsibilities– Before:

• Federal• State• Sales & Use• FAS109 • No tax knowledge outside of tax department

– Growing Trend:• Tax Controller / Director of Tax Accounting outside of the “Tax

Department”• FAS109 knowledge across the accounting/finance function• All accountants considering tax when discussing transactions

and new journal entries


Tax department priorities

• Shift in priorities– Before:

• An actual CFO’s priority sheet for a Tax function

– #1 – Reduce the effective rate– #2 – Save money through deferral of cash tax pmts– #3 - Perform compliance flawlessly

• Is this still an acceptable strategy sheet??


Tax department priorities

• Shift in priorities– Growing trend:

• Tax accounting has jumped to top of list due to visibility and attention of outside auditors

– Meanwhile:

• Complexity increases (FAS123r, FIN48, ever-complicating tax laws)

– And:

• Resources declining

– So therefore:

• Less attention to tax planning– In some cases, NO tax planning is occurring. Why?

» Resources» FIN48 complexity» FIN48 disclosure (even timing differences)» Negative media attention


FIN48 – A whole new era in Corporate Tax

• Clearly an industry changing event

• Not easy to lessen the workload, but it is important to know what will be acceptable to YOUR auditor.– You may still want to provide more detail than they are requiring,

but you do NOT want to do rework at 3AM! We’ve seen it.

• How is this really shaking out??– Common perception that the Big-4 would make the rules as we

went along. True.• Disclosures

– Quarterly disclosures are nearly all in editorial form (no charts/tables)


FIN48 Shake-out

• How is this really shaking out?? (continued)

– What is really a change “related to FIN48?”• Commands from National Tax at the Big-4 to send any FIN48 increases to

National Tax for review– Mixed with the local office’s desire to not call attention to small items

• Heavy pressure to call increases “prior year errors”– Running through the P&L gets almost no pushback– Timing differences– More detailed computations (interest, etc.)

• They are stuck on “reduction from 70% to 50%” (substantial authority more likely than not)

– Documentation• No strict guidelines

– Offsetting• Be very aware of how things would really shake out (i.e. cash pmt /

adjustments to attribute carryforwards such as NOL’s and Credit carryforwards)


FIN48 Shake-out continued

• How is this really shaking out?? (continued)

– Extremely inconsistent application between Big-4 firms:

• Firm #1 – “There is no way your FIN48 liability can be the same as your FAS-5 liability. That’s not possible.”

• Firm #2 – “We won’t let you report anything different than what was recorded under FAS5 until the audit is deemed complete.”

• Firm #1 – “You don’t have enough issues. We would never accept this if we were the external.”

• Firm #2 – “This temporary item you put up as an exposure – We really don’t think it is a risk.”


FIN48 Shake-out continued

• Surprises!!– Firm #2 – “As a client of ours, you really weren’t supposed to be

taking a “FAS-5” approach to reserves. Instead you should have been taking the “FAS-109” approach to tax reserves.

• Therefore – it is a 2006 error


FIN48 Efficiency Strategies

• The “one-outcome” approach (if any SINGLE OUTCOME has, on its own, a greater than 50% chance of being the ultimate outcome That is the answer!).

Outcome Individual Probability

$852,347 60%

All other outcomes combined 40%

• Benefit– Time saver – Don’t have to come up with other outcomes, and don’t have to assess their likelihood.

• Situations where this has been accepted by Big-4– When it would specifically be proposed by the company in case of an audit, and is 60% likely to be

accepted.– When it is based on audit experience in another jurisdiction.– It was our best guess under FAS-5, and mathmatically, it is exponentially more likely than any

other individual outcome.


FIN48 Efficiency Strategies continued

• Sourcing the GL review to other parties (accounting clerks, accounting managers, external providers)

• Front-end review of transactions from different angle. Accounting personnel should always be saying

– “How much tax benefit can be recognized for this transaction?”

– Where should it be recorded?• What is impact on current accounts?• What is impact on deferred accounts?• What is impact on tax P&L accounts?

– Maybe I should consult the tax department!


FIN48 Efficiency Strategies continued

• Talk to other companies. Find out what is on their list.

– Obviously sensitive, however it is “quasi-public” info

– JW is beginning to accumulate nameless data regarding the TYPE of issues and ISSUES ENCOUNTERED with Big-4

• Example:– Federal R&D Credit disallowance– California R&D Credit disallowance– Capitalization of small equipment– Subpart F income– California cost of performance– Etc.

• We will be using our internally developed FIN48 technology to our client’s advantage


Technology

The TRUTH – there is no silver bullet

• What efficiencies can I gain from implementing technology?– Automation of calculations– Ability to import financial information– Process management– Data Collection– Document retention– Data warehousing– Tax Planning capabilities


Technology

What do I do first:• Understand the business need:

– Inventory your current applications and activities

• Determine the business benefits– Determine where technology can create efficiencies

• Look at the options available in the market• Compute the cost• Evaluate the cost of doing nothing


Technology

• What aspects do you need to consider when evaluating technology?– Functionality– Cost– Security– Technology– Vendor profile– Maintenance and Support– Implementation – Training


Technology

Functionality• Identify all users and assess their needs FIRST!• Identify which needs are absolutely essential• Compare essential needs with software capabilities• Customizability – (specifically reporting) can the end

user do it or does it require vendor support• Usability – How easy is the software to use?• Ease of importing/exporting data• Prioritize all these needs – what is really important

and will result in the most efficiencies


Technology

Cost and Purchasing Issues– Executive buy-in and support– Great variance in price versus functionality– May require business case development– Stability of Vendor– Bill rates for technical consulting and support –

average is $150 – 250 per hour– Multi-year contract incentives – what is in it for

you?


Technology

Security– Compliance with companies security

and SOX standards– Authentication – username/password– Security customization – by User, Group,

Entity, etc.– Audit logs– Record Retention


Technology

• Technology– Hosted vs. non-hosted – know the issues– Involve your IT department– Upgrades – frequency and SOX requirements

with your IT department– Performance– Integration into existing infrastructure– System requirements – minimum vs.

recommended vs. real


Technology

Vendor profile– Vendor reputation and stability– Application reputation– Responsiveness– Feedback from other clients

Maintenance and Support– Update frequency – How easily are updates applied?– Availability of support staff


Technology

Implementation– Implementation support – vendor, outsource or

internal– Internal time and effort commitments

Training– Location of initial training – on or offsite?– Ongoing training availability – Quality of training and software manuals


Technology Options (continued)

• FAS-109 software – most frequently used– TaxStream – integrates with other compliance packages,

FIN 48 module and data collection module– CrossBorder – integrates with other compliance

packages, FIN 48 module, recently acquired by Thompson

– CorpTax – FAS 109 and compliance packages, FIN 48 module and data collection module

– InSource – FAS 109 and compliance packages, FIN 48 module, work-flow management module and data collection module

– VantageTax – Primarily compliance package – have a global provision product, recently partnered with TaxStream


Technology Options (continued)

• FAS-109 software – other options– eTaxProvision – Tax Technologies, Inc.– GTO TaxCalc – Levyti Consulting (“Global Tax

Office”)– Longview Tax Solutions – Canadian based– TaxSation – Compliance and provision tools

(“Corporate Pro”)– EA Taxscore – Netherlands based international program– Liquid Engines – (GPM) FIN 48 and advanced

international and state modeling capabilities, no FAS 109 calculation


Resource Solutions

• Survey of room – How is everyone “getting it done?”

• Combo of Big-4/mid-tier firms

• How have professional fees been impacted?


Q & A

Jarvis L. BomarDirector – Tax OperationsJefferson Wells Kansas CityPhone: 816-627-4203Mobile: 816-588-5172

leveraging technology and resources in a new age of tax jarvis l. bomar jefferson wells

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