2010 Mid-Year Accounting and Tax Update<br />May 13, 2010<br />Catherine Fox-Simpson<br />
2010 Mid-Year Accounting & Tax Update<br /><ul><li>Uncertain Tax Positions
Tax Legislation
Accounting Update
SEC Update</li></ul>2010 Mid-Year Update<br />Page 2<br />
		Uncertain Tax Positions<br />Client name - Event - Presentation title<br />Page 3<br />
Uncertain Tax Positions<br /><ul><li>January 26, 2010 IRS drops a bomb
IRS Announcement 2010-9
Certain Business Taxpayers to be required to report uncertain tax positions (UTP)	 in Tax Returns
April 19, 2010 IRS issues draft of new form
UTP reporting effective for 2010 tax returns</li></ul>2010 Mid-Year Update<br />Page 4<br />
Uncertain Tax Positions<br /><ul><li>Background
Post Enron
July 2004, IRS Form M-3, Net Income(Loss) Reconciliation
FASB Interpretation No. 48 (FIN 48 )—now ASC 740-10
GAAP adoption 1/1/2007 (for Public Companies)
GAAP adoption 1/1/2009 (for Private Companies)
2010, IRS Schedule UTP for Form 1120
Comment period ends June 1, 2010</li></ul>2010 Mid-Year Update<br />Page 5<br />
Uncertain Tax Positions<br /><ul><li>Drive for Transparency
Eliminate the Cat & Mouse game
IRS spends too much time trying to identify issues
IRS should spend time on the right issues
Commissioner Shulman, April 12, 2010:
“… I believe the new schedule [UTP] has the potential to be a much more valuable tool [than the M-3] for fair and effectiv...
Uncertain Tax Positions<br /><ul><li>Affected Taxpayers
Corporations filing Form 1120, U.S. Corporation Income Tax Return
Life Insurance and Property & Casualty Insurance Companies
Foreign Corporations filing U.S. tax returns
Assets equal or greater than $10 million
With Uncertain Tax Positions
Issuing Audited Financial Statements
Or, related party issues audited financials
And, recorded a reserve for the UTP (i.e., doesn’t recognize the full benefit of the tax position)
Schedule UTP not yet applicable to partnerships, REITs or Tax-Exempts</li></ul>2010 Mid-Year Update<br />Page 7<br />
Uncertain Tax Positions<br /><ul><li>How does the IRS define reportable UTP?
“Recorded a reserve”
Report tax positions for which the entity has “recorded a reserve” under ASC 740-10
Report tax positions when no reserve recorded based on “expectation to litigate”
Report tax positions when no reserve based on “IRS administrative practice”
Piggyback on the GAAP rules for UTP
“Tax Position”  =  A line item in the tax return that would result in an adjustment if the taxpayer 	treatment is not sust...
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Catherine Fox.Bdo.Tax Provisions In The American Recovery.Tax Update 5 13 10

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Health Care Reform and 2010 Tax Law Changes

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Catherine Fox.Bdo.Tax Provisions In The American Recovery.Tax Update 5 13 10

  1. 1. 2010 Mid-Year Accounting and Tax Update<br />May 13, 2010<br />Catherine Fox-Simpson<br />
  2. 2. 2010 Mid-Year Accounting & Tax Update<br /><ul><li>Uncertain Tax Positions
  3. 3. Tax Legislation
  4. 4. Accounting Update
  5. 5. SEC Update</li></ul>2010 Mid-Year Update<br />Page 2<br />
  6. 6. Uncertain Tax Positions<br />Client name - Event - Presentation title<br />Page 3<br />
  7. 7. Uncertain Tax Positions<br /><ul><li>January 26, 2010 IRS drops a bomb
  8. 8. IRS Announcement 2010-9
  9. 9. Certain Business Taxpayers to be required to report uncertain tax positions (UTP) in Tax Returns
  10. 10. April 19, 2010 IRS issues draft of new form
  11. 11. UTP reporting effective for 2010 tax returns</li></ul>2010 Mid-Year Update<br />Page 4<br />
  12. 12. Uncertain Tax Positions<br /><ul><li>Background
  13. 13. Post Enron
  14. 14. July 2004, IRS Form M-3, Net Income(Loss) Reconciliation
  15. 15. FASB Interpretation No. 48 (FIN 48 )—now ASC 740-10
  16. 16. GAAP adoption 1/1/2007 (for Public Companies)
  17. 17. GAAP adoption 1/1/2009 (for Private Companies)
  18. 18. 2010, IRS Schedule UTP for Form 1120
  19. 19. Comment period ends June 1, 2010</li></ul>2010 Mid-Year Update<br />Page 5<br />
  20. 20. Uncertain Tax Positions<br /><ul><li>Drive for Transparency
  21. 21. Eliminate the Cat & Mouse game
  22. 22. IRS spends too much time trying to identify issues
  23. 23. IRS should spend time on the right issues
  24. 24. Commissioner Shulman, April 12, 2010:
  25. 25. “… I believe the new schedule [UTP] has the potential to be a much more valuable tool [than the M-3] for fair and effective tax administration.”</li></ul>2010 Mid-Year Update<br />Page 6<br />
  26. 26. Uncertain Tax Positions<br /><ul><li>Affected Taxpayers
  27. 27. Corporations filing Form 1120, U.S. Corporation Income Tax Return
  28. 28. Life Insurance and Property & Casualty Insurance Companies
  29. 29. Foreign Corporations filing U.S. tax returns
  30. 30. Assets equal or greater than $10 million
  31. 31. With Uncertain Tax Positions
  32. 32. Issuing Audited Financial Statements
  33. 33. Or, related party issues audited financials
  34. 34. And, recorded a reserve for the UTP (i.e., doesn’t recognize the full benefit of the tax position)
  35. 35. Schedule UTP not yet applicable to partnerships, REITs or Tax-Exempts</li></ul>2010 Mid-Year Update<br />Page 7<br />
  36. 36. Uncertain Tax Positions<br /><ul><li>How does the IRS define reportable UTP?
  37. 37. “Recorded a reserve”
  38. 38. Report tax positions for which the entity has “recorded a reserve” under ASC 740-10
  39. 39. Report tax positions when no reserve recorded based on “expectation to litigate”
  40. 40. Report tax positions when no reserve based on “IRS administrative practice”
  41. 41. Piggyback on the GAAP rules for UTP
  42. 42. “Tax Position” = A line item in the tax return that would result in an adjustment if the taxpayer treatment is not sustained</li></ul>2010 Mid-Year Update<br />Page 8<br />
  43. 43. Uncertain Tax Positions<br /><ul><li>How does GAAP define UTP?
  44. 44. Tax positions which do not meet the “more-likely-than-not” (MLTN) standard
  45. 45. MLTN is more than 50% likely
  46. 46. Therefore, tax positions that are 50/50 or less likely to be sustained by the IRS
  47. 47. Tax positions that are MLTN but less than “highly certain” may still have a reserve
  48. 48. Since the entity may have reserved some but not all of the tax benefit (i.e., not recognized the full benefit of the position)
  49. 49. “Highly certain” not defined in GAAP
  50. 50. Literature states: “clear and unambiguous tax law” and “management is highly confident” in the sustainability of tax positions as providing high certainty.
  51. 51. Recognize the full amount of the tax positions meeting the highly certain criteria.</li></ul>2010 Mid-Year Update<br />Page 9<br />
  52. 52. Uncertain Tax Positions<br /><ul><li>Audited Financial Statement
  53. 53. A Financial Statement on which an independent third party expresses an opinion
  54. 54. GAAP
  55. 55. IFRS
  56. 56. Other country specific accounting
  57. 57. Includes modified versions such as, modified GAAP</li></ul>2010 Mid-Year Update<br />Page 10<br />
  58. 58. Uncertain Tax Positions<br /><ul><li>Recorded a Reserve
  59. 59. An increase in a liability for income taxes payable
  60. 60. A reduction in an income tax refund
  61. 61. An increase in a deferred tax liability
  62. 62. A reduction in a deferred tax asset
  63. 63. Initial recording of a reserve triggers reporting of a tax position
  64. 64. Subsequent reserve increases or decreases are not reported</li></ul>2010 Mid-Year Update<br />Page 11<br />
  65. 65. Uncertain Tax Positions<br /><ul><li>Affiliated Groups
  66. 66. Consolidated Return: file a single Schedule UTP for the group
  67. 67. No need to identify to which member the UTP pertains or who recorded a reserve
  68. 68. Separate return filers would be required to include Schedule UTP
  69. 69. Related Party
  70. 70. 50% or more [§318]/more than 50% [§§267 & 707]
  71. 71. Any entity included in a consolidated audited financial statement in which the subject entity is included</li></ul>2010 Mid-Year Update<br />Page 12<br />
  72. 72. Uncertain Tax Positions<br /><ul><li>Disclose primary Internal Revenue Code sections affected
  73. 73. Disclose UTP as Permanent or Temporary
  74. 74. Compute Maximum Tax Adjustment (MTA)
  75. 75. An estimate of the maximum amount of potential US federal income tax liability
  76. 76. For the tax year in which the tax position is taken—MTA determined on an annual basis
  77. 77. Utilize a 35% tax rate for the calculation of the MTA
  78. 78. Tax credits: estimate the total amount of credit potentially disallowed
  79. 79. No Netting: the MTA for each item of income and deduction is treated separately
  80. 80. Offsets allowed only for items relating to the same tax position
  81. 81. Disclose UTP even if offset by NOLs
  82. 82. Unit of Account
  83. 83. Must be the same as used for GAAP</li></ul>2010 Mid-Year Update<br />Page 13<br />
  84. 84. Uncertain Tax Positions<br /><ul><li>Effective Date</li></ul> Calendar year 2010<br /> Fiscal years beginning in 2010<br /> Not required for tax positions taken for years beginning before 12/15/2009<br /> Not required for year beginning on or after 12/15/2009 and ending before <br /> 1/1/2010<br />2010 Mid-Year Update<br />Page 14<br />
  85. 85. Tax Legislation <br /> HIRE ACT<br />Client name - Event - Presentation title<br />Page 15<br />
  86. 86. Hiring Incentives to Restore Employment Act<br /><ul><li>HIRE Act Enacted March 18, 2010
  87. 87. Hiring and Business Stimulus Incentives
  88. 88. Foreign Compliance
  89. 89. Revenue Raisers</li></ul>2010 Mid-Year Update<br />Page 16<br />
  90. 90. Hiring Incentives to Restore Employment Act<br /><ul><li>Payroll Tax Holiday in 2010
  91. 91. Social Security Tax (OASDI)—6.2%
  92. 92. Wages paid March 19 to December 31, 2010
  93. 93. Holiday does not apply to the Medicare Tax—1.45%
  94. 94. Maximum tax exemption per employee is about $6,600
  95. 95. $106,800 (OASDI base) X 6.2% = $6,621.60
  96. 96. No minimum hours of employee work to qualify
  97. 97. Applicable to taxable businesses and tax-exempt organizations
  98. 98. Not applicable to public-sector employees (Federal, State and Local Government)
  99. 99. Public colleges and universities can qualify
  100. 100. Not applicable to household employees
  101. 101. Applicable to new businesses
  102. 102. Applicable if employer has been claiming COBRA premium assistance credit and employer rehires</li></ul>2010 Mid-Year Update<br />Page 17<br />
  103. 103. Hiring Incentives to Restore Employment Act<br /><ul><li>Payroll Tax Holiday—Qualified Employees
  104. 104. Begins employment after February 3 and before January 1, 2011
  105. 105. Unemployed: hasn’t been employed more than 40 hours
  106. 106. During the 60-day period before Hire
  107. 107. Certification by signed affidavit (new Form W-11)
  108. 108. 60-day period must be continuous but can span 2009 — 2010
  109. 109. Does not apply to employee hired to replace an existing worker</li></ul> Unless termination for cause or worker voluntarily quit<br /><ul><li>Applies to Rehired Workers
  110. 110. Can apply to new employee essentially replacing a previously laid-off worker</li></ul> Because original lay-off due to business shrinkage and new hired due to business pick-up<br /><ul><li>Can apply to newly hired graduate who has been in school for some or all of 60-day period
  111. 111. Not applicable to family members and certain other related parties</li></ul>2010 Mid-Year Update<br />Page 18<br />
  112. 112. Hiring Incentives to Restore Employment Act<br /><ul><li>Payroll Tax Holiday—Claiming Tax Exemption
  113. 113. Claimed on Form 941, Quarterly Payroll Tax Return
  114. 114. Beginning with 2010 Q2 filing
  115. 115. Exemption for March 19 to March 31 claimed on Q2 941 filing
  116. 116. Revised forms W-2 and W-3 to indicate wages eligible for the exemption
  117. 117. Payroll Tax Holiday—Work Opportunity Tax Credits
  118. 118. Wages on which employer claims the HIRE tax exemption cannot be used for the WOTC
  119. 119. HIRE Holiday only good for wages thru December 31</li></ul>2010 Mid-Year Update<br />Page 19<br />
  120. 120. Hiring Incentives to Restore Employment Act<br /><ul><li>Retained Worker Credit
  121. 121. $1,000 Credit per employee
  122. 122. Employed any time during the year
  123. 123. Employed for no less then 52 consecutive weeks
  124. 124. Wages for last 26 weeks must equal at least 80% of wages for the first 26 weeks
  125. 125. Credit is lesser of $1,000 or 6.2% of wages paid during the 52 week period
  126. 126. Wages exceeding $16,129 will generate maximum credit
  127. 127. Applicable for any tax year ending after March 18, 2010
  128. 128. Calendar year taxpayer able to claim credit in 2011 when 52 week period satisfied
  129. 129. No carryback to years beginning before March 18, 2010</li></ul>2010 Mid-Year Update<br />Page 20<br />
  130. 130. Hiring Incentives to Restore Employment Act<br /><ul><li>Section 179 Expensing Limits Increased for 2010</li></ul> $250,000 maximum expensing extended through 2010<br /> Phase out threshold remains at $800,000<br /><ul><li>Tax Credit Bonds—holders may elect to receive direct payment from IRS instead of credit</li></ul>New clean renewable energy bonds (CREBs)<br />Qualified energy conservation bonds (QECBs)<br />“Build America Bonds” QZABs and QSCBs<br />2010 Mid-Year Update<br />Page 21<br />
  131. 131. Hiring Incentives to Restore Employment Act<br />Foreign Compliance<br /><ul><li>New anti-abuse measures to deter US taxpayers from hiding assets offshore
  132. 132. New withholding requirements
  133. 133. New reporting requirements</li></ul>2010 Mid-Year Update<br />Page 22<br />
  134. 134. Hiring Incentives to Restore Employment Act<br />Foreign Compliance—Withholding<br /><ul><li>30% withholding tax
  135. 135. Payments to foreign financial institution (Bank, Brokerage, etc.)
  136. 136. Not required if foreign bank reports information regarding its “US Accounts”
  137. 137. Withholding required on
  138. 138. Interest
  139. 139. Dividends
  140. 140. Rents
  141. 141. Royalties
  142. 142. Compensation</li></ul>2010 Mid-Year Update<br />Page 23<br />
  143. 143. Hiring Incentives to Restore Employment Act<br />Foreign Compliance—Withholding<br /><ul><li>United States Account
  144. 144. Any financial account which is held by U.S. person (other than publicly traded corporations, tax-exempts, state & local government entities, REITS, etc.)
  145. 145. Financial account held by a U.S. owned foreign entity (more than 10% owned by US person)
  146. 146. Exception: where all accounts held by a natural person do not exceed $50,000
  147. 147. Withholding tax avoided by foreign bank by agreement with IRS to:
  148. 148. Determine whether each of its accounts is a US Account
  149. 149. Comply with verification and due diligence procedures
  150. 150. Annually report the name, address and TIN of the US Account holder, account number, account balance and withdrawals and payments
  151. 151. Comply with IRS information requests
  152. 152. Obtain waiver for each US Account holder of foreign law confidentiality provisions</li></ul>2010 Mid-Year Update<br />Page 24<br />
  153. 153. Hiring Incentives to Restore Employment Act<br />Foreign Compliance—Reporting <br /><ul><li>Tax Return Reporting: ownership of foreign financial accounts must be reported by an individual in his/her Form 1040
  154. 154. Aggregate value in excess of $50,000
  155. 155. Deposit or custodial account with a foreign financial institution
  156. 156. Stocks or securities issued by a foreign person
  157. 157. Financial contract held for investment issued by non US person
  158. 158. Any interest in a foreign entity
  159. 159. In addition to Foreign Bank and Financial Account Report (FBAR)—TD F 90-22.1
  160. 160. Effective for Taxable Years after Enactment (i.e., 2011)</li></ul>2010 Mid-Year Update<br />Page 25<br />
  161. 161. Hiring Incentives to Restore Employment Act<br />Foreign Compliance—Reporting <br /><ul><li>New $10,000 penalty (increased for non compliance after IRS Notice)
  162. 162. New 40% penalty on any underpayment of tax attributable to undisclosed foreign financial information</li></ul>2010 Mid-Year Update<br />Page 26<br />
  163. 163. Hiring Incentives to Restore Employment Act<br />Foreign Compliance—Reporting <br /><ul><li>New Statute of Limitations for Omission of Foreign Account Income
  164. 164. Six-year Statute
  165. 165. Omissions greater than $5,000 and the income is attributable to foreign financial accounts
  166. 166. Suspension of start of Statute running for failure to timely file:
  167. 167. Form 5471, Controlled Foreign Corporation reporting
  168. 168. Form 8858, Foreign Disregarded Entity
  169. 169. Form 8865, Controlled Foreign Partnership reporting
  170. 170. Form 5472, Foreign Related Party reporting
  171. 171. Form 926, transfers to foreign persons
  172. 172. Form 3520-A, Foreign Trust reporting
  173. 173. New foreign financial asset reporting</li></ul>2010 Mid-Year Update<br />Page 27<br />
  174. 174. Tax Legislation<br />Health Care<br />Client name - Event - Presentation title<br />Page 28<br />
  175. 175. Health Care Reform<br />
  176. 176. Health Care Reform<br /><ul><li>Two Legislative Acts
  177. 177. The Patient Protection and Affordable Care Act
  178. 178. Health Care and Education Reconciliation Act of 2010
  179. 179. Primarily legislative changes for the health care system, but included many revisions to the Internal Revenue Code</li></li></ul><li>Small Business Tax Credit<br /><ul><li> Tax credit designed to increase levels of health insurance coverage
  180. 180. 25 or fewer employees and average annual wages of less than $50,000
  181. 181. Eligible for a credit up to 50% of non-elective contributions the business makes on behalf of its employees for insurance premiums
  182. 182. 10 or fewer employees and average wages less than $25,000
  183. 183. Eligible for a credit of 100%
  184. 184. Credit is available for tax years beginning after December 31, 2009
  185. 185. Included as a General Business Credit
  186. 186. Phased in through 2013
  187. 187. Maximum credit during phase-in is 35%</li></ul>Client name - Event - Presentation title<br />Page 31<br />
  188. 188. Employer Responsibility <br /><ul><li>An “applicable large employer” who:
  189. 189. Does not offer coverage for all its full-time employees
  190. 190. Offers minimum essential coverage that is unaffordable
  191. 191. Offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60%
  192. 192. Is required to pay a penalty if any full-time employee is certified to the employer as having purchased insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.
  193. 193. Applicable large employer – employed an average of at least 50 full-time employees during the preceding calendar year.</li></ul>Client name - Event - Presentation title<br />Page 32<br />
  194. 194. Employer Responsibility<br /><ul><li>Penalty:
  195. 195. Calculated monthly.
  196. 196. Penalty – excise tax equal to the number of full-time employees in excess of 30 multiplied by $166.67 (or $2,000 annually)
  197. 197. Calculated without regards to how many employees are receiving a premium tax credit or cost-sharing reduction.
  198. 198. Effective for periods beginning after December 31, 2013</li></ul>Client name - Event - Presentation title<br />Page 33<br />
  199. 199. Prescription Drug Coverage<br /><ul><li>Eliminates the IRC Section 139A deduction for employers who subsidize prescription drug coverage for their employees who are eligible for Medicare Part D
  200. 200. Effective for tax years beginning after December 31, 2010
  201. 201. ASC 740 Implications</li></ul>Client name - Event - Presentation title<br />Page 34<br />
  202. 202. Reporting Requirements<br /><ul><li>Insurers (including self-insured) that provide minimum essential coverage to any individual during a calendar year must report certain information to the covered individual and the IRS.
  203. 203. Information to be provided:
  204. 204. Name, address and taxpayer identification number of the primary insured and others obtaining benefit under the coverage
  205. 205. Dates during which the individual was covered under the policy during the calendar year
  206. 206. Whether the coverage is a qualified health plan offered through an exchange
  207. 207. The amount of any premium tax credit or cost-sharing reduction received by the individual with respect to the such coverage
  208. 208. Any other information that Treasury requires
  209. 209. Effective for calendar years beginning after 2013</li></ul>Client name - Event - Presentation title<br />Page 35<br />
  210. 210. Information Reporting<br /> Disclosure on Form W-2 the value of the employee’s health insurance coverage sponsored by the employer.<br /> Effective for tax periods beginning after December 31, 2010<br />Client name - Event - Presentation title<br />Page 36<br />
  211. 211. High Cost Employer Plans<br /><ul><li> Excise tax on insurers if the aggregate value of employer-sponsored health insurance coverage exceeds a threshold amount.
  212. 212. Tax is equal to 40% of the excess amount
  213. 213. 2018 threshold amount is $10,200 for individual coverage and $27,500 for employee coverage.
  214. 214. Higher limits provided for high risk professions
  215. 215. After 2018, the annual limitation is adjusted for inflation.
  216. 216. Provision is effective for tax years beginning after December 31, 2017</li></ul>Client name - Event - Presentation title<br />Page 37<br />
  217. 217. Medical Device Excise Tax<br />2.3% excise tax on the sale of certain medical devices <br />Applies to any medical device intended for humans, except eyeglasses, contact lenses, hearing aids, and medical devices generally sold at retail to the public for individual use. <br />Effective for sales after December 31, 2012 <br />Client name - Event - Presentation title<br />Page 38<br />
  218. 218. Information Reporting<br /><ul><li> Form 1099’s required for all payments aggregating $600 or more in a calendar year to a single payee, including a corporation
  219. 219. Effective for payments made after December 31, 2011</li></ul>Client name - Event - Presentation title<br />Page 39<br />
  220. 220. Economic Substance Doctrine<br /><ul><li> Codification as Section 7701(o)
  221. 221. A transaction will be treated as having economic substance only if the transaction changes the taxpayer’s position in a meaningful way (apart from the tax benefits) and the taxpayer has a substantial purpose (apart from the tax benefits) for entering into the transaction.
  222. 222. Economic substance originally created by the courts, which has resulted in various interpretations
  223. 223. Codification results in a two-part test
  224. 224. Failure to meet economic substance test included as a listed transaction</li></ul>Client name - Event - Presentation title<br />Page 40<br />
  225. 225. Implementation Timeline<br />Client name - Event - Presentation title<br />Page 41<br />
  226. 226. What’s next?<br />Client name - Event - Presentation title<br />Page 42<br />

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