This document summarizes a case study presentation about Lincoln Financial Group's efforts to automate their tax audit processes using Red Moon Solutions' eTaxPortal software. Lincoln was facing challenges from growing tax audit volumes, complex requirements, and the need for improved controls and accountability across multiple locations. They worked with Red Moon to design automated workflows for handling notices, examinations, documentation exchanges and tracking outcomes. The new system provides visibility and accountability. Lincoln is seeing benefits like better relations with tax authorities, fewer errors and reduced penalties. They are looking to further automate using the system for additional tax processes and governance.

1. A Case Study in Cutting Edge Audit
Automation (and Notices)
Monday, May 20, 2013 9:45 - 11:00 AM

2. Presented by: Blake Martin - Vice President,
Head of Tax at Lincoln Financial Group and
Kelley Lear – Managing Director, Red Moon
Solutions
Case Study in
Automation
Financial Services

3. The Audit Beast Has
Mutated

4. Cash Hungry Treasury and
States…
 Preparing for and
responding to tax
examinations is growing
more challenging every
day
 More information in
shorter response times
 Global tax authorities are
streamlining their
processes and expanding
resources

5. Requirements on the Rise
 Federal/state/province
and local tax
enforcement is on the
rise (as is the
sophistication of these
taxing authorities)
 Reporting requirements are expanding: FBAR,
FATCA, transfer pricing disclosures, SOX rules,
global developments around Uncertain Tax
Positions and other tax related contingency
reserves, withholding requirements (B Notices)
and more…

6. What are your peers saying?
•States are hiring
more auditors.
•All states trying
for reducing audit
aging.
•Voluntary disclosures
are getting pitched more
by the jurisdictions.
•States like NY are getting
more and more automated.
They even have online
service accounts.
•Referrals to state taxing
authorities from other
tax types have ratcheted
up.
•MTC audits can
last forever…

7. What are your peers saying?
•Getting auditor to
commit to closing audit.
•Extensive, lengthy
audit questionnaires
•Extensive invoice and
sales documentation (e.g.
sales contracts) required by
auditor
•Auditor-prepared monthly
reconciliation of tax return
data vs. workpaper/G/L
data.
•AZ, TX Sales &
Use nightmares
•Stunningly large preliminary
assessments – double what I
expect!!
• I am seeing a lot of
"divergences" from IRM,
procedures, and even taxpayer
rights

8. Who is Lincoln Financial
Group?
• Provider of life insurance, annuities,
retirement plans, mutual funds and other
financial services
• Fortune 500 company with over 8,000
employees
• Headquartered in the Philadelphia region
– Principal operations also in Indiana and North
Carolina

9. We consider the “Tax
Function” to be
throughout the company:
• Corporate Tax
Department
• Law Department
• Accounting
• Actuarial
• Business
Operations
What Does our Tax Department
Look Like?

10. How we are structured:
• Over 30 tax professionals
in 3 locations
• Other stakeholders in
many more locations
• IRS Team located in
Indiana
What Does our Tax Department
Look Like?

11. What made us take the
leap into automation?
• Why we did we decide to
automate?
– Multi-location tax function with many
parties
– Desire to increase delivery and
resolution time for audit inquiries
– Mail being received in multiple
locations with propmpt replies
required
– Desire to improve controls and
accountability

12. What was our tipping
point?
• Goal to make all tax
examinations more
collaborative and much faster
• Reduce exposures
• Reduce conflict
• Consider “Continual Audit
Program” (CAP) for federal
audits

13. Managing the Insanity…
• Federal Income Tax:
– Federal tax examinations, Appeals and Litigation
– Tax and interest re-computations
– Statutes of Limitations and extensions
• State Income Tax:
– Delinquency notices (unfiled returns) & notices of
assessment
– Tax payer requests for change of tax information
– Notice of adjustment to corporate income
– Notice of late filing
• Premium Tax (State and Muni):
– Notice of Class B Assessments
– Underpayment and Overpayments
– Tax payment process and tracking
– Special Assessments and delinquency
– Incorrect withholding
• Sales & Use Tax:
– Letters of Inquiry with respect to a jurisdiction
(corporate business tax, state business tax and
seller’s use tax)
– Underpayment and Overpayments
• Information Reporting
– 1099’s, B Notices, Other..

14. Managing the Insanity…
• Federal W/H, FICA, FUTA, SUTA:
– Overpayments and underpayments (interest and penalties)
– Unemployment Insurance
• State W/H:
– Notice of W/H tax due
– Tax payment confirmation and tracking
– Refunds requested
• Personal Property Tax:
– Demand for Personal Property Tax Payment
– Payment documentation and tracking
– Assessment and invoices
• Real Property Tax:
– Returns
– Payments
– Assessments and invoices
– Payment documentation and tracking
• Guarantee Fund Assessments
• State & Local Business Licenses

15. People, Process and
Technology to the Rescue
• Goals
• Accountability
• Control
• Transparency
• Designed an overall process
• Identified entry points (mail, tax authorities,
etc.)
• Identified actions required
• Identified roles and responsibilities
• Provides online control and visibility for
every tax type, notices, full
audit cycle and results!

16. • Full end to end automation and tracking of all notices
• Utilizing eTaxPortal – NoticeTracker
• Can link to audit projects as well
• Full end to end automation and
tracking of audit inception through
payment, protest and appeals
(as applicable):
 IDR
 RAR
 NOPA or NPA
 6662
 Tax Claim
 Protest & Appeals
People, Process and
Technology to the Rescue
Log and
respond to
IDR’s
Automate
back and
forth
responses
Respond to
RAR’s
Automate
responses
to NOPA’s
and
tracking
Finalize,
and/or pay,
protest or
appeal

17. IRS Audit
Notices
Notices Rec’d
in GSO Mail
Notices Received
in Mail
Enter into Notice
Log (date stamped)
Attach Scanned
Copy of Notice
Automatically
Assigned to Leader
Notice Automation

18. Leader Reviews and Assigns to
Staff (system date stamp)
Staff Prepares Resources
Staff Reviews and Responds
(system date stamped)
Attach Copy of Correspondence
Sent to Taxing Authority (system
date stamped)
Audit Automation

19. Attach Response if Final Notice
and Mark “Closed”
Request for Addit’l Info / Staff
Reviews and Responds (system
date stamped)
Attach Final Notice Indicating
Closed and Mark “Closed”
Attach Copy of Correspondence
Sent to Taxing Authority (system
date stamped)
Audit Automation

20. Now What Does the Process
Look Like in the eTaxPortal?
Notice Types are set up
already and have default
routing to “Assign To Leader”

24. 012

32. What are we learning
through this process?
• Process has to be designed for
your organization
– Identify population to be managed
– Communicate initial process and
roles
– Be prepared to change the design
quickly
• There are many small issues you won’t
initially identify that will seem to
continually pop up

33. What are we learning
through this process?
– Design a change
process to maintain
controls
• Emphasize that this is the
new (and only) process
• Slow reaction to
problems will build
disillusion and resistance
– Review frequently with
Red Moon
– Plan for the future
Step 1
Step 2
Step 3
Review

34. What are we learning
through this process?
Results:
• Better relations with tax
authorities
• More accountability
• Single control, no more
individual spreadsheet
controls
• Fewer errors
• Reduced interest and
penalties

35. What are we looking
forward to further
automating?
Next Steps:
• Tax Projects
• Tax Developments
• Tax Records Management
• Governance of Tax Processes
• Use of Tax Calendar

36. Thank you for reading!
For more information, contact me at:
Kelley Lear
Kelley.Lear@redmoonsolutions.com
941-379-7108
Blake Martin
Blake.martin@lfg.com
484-583-1471
www.redmoonsolutions.com
blog.redmoonsolutions.com
www.twitter.com/redmoonsolution