The document summarizes recent developments in tax compliance and reporting for tax year 2012. It discusses new requirements for Form 8949, Schedule M-3, Schedule UTP, and Form 8886. It also addresses changes to reporting of foreign operations, such as expanded reporting on Form 5471 and Form 8858. Additionally, the summary discusses IRS service center compliance issues and state tax return reporting developments for 2012, including rate changes, allocation and apportionment modifications, and new electronic filing mandates.

1. Compliance and reporting:
recent developments
and issues
1 May 2013

2. Eighth annual domestic tax conferencePage 1
Disclaimer
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3. Eighth annual domestic tax conferencePage 2
Circular 230 disclaimer
► Any US tax advice contained herein was not intended or written to be used,
and cannot be used, for the purpose of avoiding penalties that may be
imposed under the Internal Revenue Code or applicable state or
local tax law provisions.
► These slides are for educational purposes only and are not intended, and
should not be relied upon, as accounting advice.

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Today’s presenters
Carolyn Bailey
Ellen Berger
Jeff Ellsworth
Elvin Hedgpeth
Minde King
Mike Medley

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Agenda
► TY 2012 tax return reporting developments:
► Federal
► US reporting of foreign operations
► IRS service center compliance issues
► State
► Taxing authority audits — impact on compliance and reporting
► Future tax return reporting developments
► Current developments in “how work gets done”
► Wrap-up
► Additional Q&A

6. TY 2012 tax return reporting
developments — federal

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Form 8949
► Sales and other dispositions of capital assets:
► New for corporations and partnerships to report sales and exchanges of
capital assets
► Report transactions that would have been reported by corporations and
partnerships on Schedule D or Schedule D-1 in prior years
► Allows IRS and taxpayer to reconcile amounts that were reported on Form 1099-B
or 1099-S (or substitute statement) with the amounts reported on the return
► File with Schedule D for return including Forms 1040, 1065, 1065-B, 8865, 1120,
1120S, 1120-C, 1120-F, 1120-FSC, 1120-H, 1120-IC-DISC, 1120-L, 1120-ND,
1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-SF, and certain Forms 990-T,
but not Form 1041

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Other business return reporting issues
► Schedule M-3 — no substantive changes this year for Form 1120 and
Form 1065
► No separate payment card reporting requirements for gross receipts received
via payment card (credit and debit cards) and third-party network payments
for Forms 1120, 1120-S and 1065
► Principal Business Activity Codes — Forms 1120, 1065, and 1120-F —
revised and updated
► Form 1120, Schedule K — new questions
► Form 1065, Schedule B, Schedule K-1 — new questions

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Schedule UTP
► Reporting threshold:
► Decrease in asset threshold for reporting uncertain tax positions from assets that
equal or exceed $100m to assets that equal or exceed $50m
► Reporting — no changes:
► Part I — tax positions taken on 2012 return
► Part II — tax positions taken in a prior tax year (2010–2011) that have not been
reported on Schedule UTP on a prior year return

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Form 8886
► New Q&A released by IRS providing guidance on requirements for filing a
complete Form 8886
► Penalties may be imposed for failure to submit complete disclosure
► Complete disclosure includes the following:
► Completed according to the instructions and regulations
► Describes the expected tax treatment and all potential tax benefits expected
from the transaction
► Describes any tax return protection
► Describes the transaction in sufficient detail for the IRS to be able to understand
the tax structure of the transaction and identify all parties involved

11. TY 2012 tax return reporting developments —
US reporting of foreign operations

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International overview
► Legislative change
► Impact on attributes such as E&P, foreign tax credit (FTC), relevance of all
attributes not just some
► Readiness and how comfortable you are with “as filed” numbers
► Courts
► Extraterritorial income (ETI) and the CBS case
► IRS updates to international forms and changes/updates to regulations
► Amendment to Reg. Section 1.861-9T and 1.861-11T
► Final Regs around use of controlled corporations to avoid Section 304
► Forms 5471 and 8858

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Revised IRS instructions to Form 5471 —
2012 tax year
► Revised instructions and revised Form 5471
► Extension of the constructive ownership exception to filing Form 5471 for
Category 3 and 4 filers under Treas. Reg. Section 1.6046-1(e)(4)(iii) and
1.6038-2(j)(2)(i), respectively, to Category 5 filers
► Code Section 6038(a)(4) gives the Secretary authority through issuing instructions
to Form 5471 to require reporting by a US person treated as a US shareholder.
► The extension of the exception can only be applied to Form 5471s filed for years
ending 31 December 2012 or later since the exception is added through the Form
instructions, which apply starting with the Form 5471 revised December 2012.

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Form 5471 other changes
► Expansion of Schedule G
► Reportable transactions:
► Applies to CFCs
► Need to also file Form 8886
► Foreign taxes disqualified under Section 901(m) application
► Section 909 — suspended taxes
► Keep in mind Section 6501(c)(8) — must make sure these questions are
correctly answered or risk the statute staying open

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Form 8858 — expanded Schedule G,
dual consolidated loss
► Schedule G — question 4
► Asks if the foreign disregarded entity (DE) is a separate unit or part of a combined
separate unit where the separate unit or combined separate unit have a dual
consolidated loss (DCL)
► If yes, enter the amount of the DCL
► Schedule G — questions 5a, 5b and 5c
► Question 5a — asks whether the DCL was taken into account in computing
consolidated taxable income
► Question 5b — asks whether this was a permitted domestic use
of the DCL
► Question 5c — if it was not a permitted domestic use, asks whether the DCL was
used to compute consolidated taxable income as provided under Reg. Section
1.1503(d)-4; identify the amount contributed to cumulative register
(beginning of the year)
► Make sure DCL certifications are matching what is disclosed on the
Form 8858

16. TY 2012 tax return reporting developments —
IRS service center compliance issues

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Service center compliance issues
► Automated late filed 5471 penalty program
► Form 1042
► Rejection of 1042-S not properly completed
► Audits of payors and payees by both service centers and international examiners
► Form 1120-F
► Requests for EIN using SS-4, but tax return not subsequently filed
► 8804
► Challenging 1065’s where there is some indicia of a foreign partner and
no 8804 filed
► FAQ 18
► Remains available for delinquent filings
► FBARs

18. TY 2012 tax return reporting developments —
State

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State overview
► State tax revenues have continued to rebound from the financial crisis
► Combination of spending cuts, some tax increases and increased enforcement has
resulted in a more stable fiscal picture
► Some states have enacted tax cuts, and many governors and legislatures
have proposed tax reductions
► Largest state budget challenge is rising Medicaid costs
► Medicaid enrollment and cost levels are a major issue for 2013, as state spending
related to federal health care reforms comes online
► State expansions required by federal health reform will create stress in
FY 2013 budgets
► Challenges for corporate tax functions

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Rate changes for TY 2012
► Connecticut
► Corporate tax surcharge of 20% for 2012 and 2013
► Idaho
► Corporate income tax rate reduced from 7.6% to 7.4% for 2012
► Indiana
► Corporate income tax rate reduced from 8.5% to 8.0% after 30 June 2012 and
before 1 July 2013
► Massachusetts
► Corporate excise tax rate reduced from 8.25% to 8.0%
► Pennsylvania
► Franchise tax rate reduced from 0.289% to 0.189%
► West Virginia
► Corporate income tax rate reduced from 8.5% to 7.75%
► Franchise tax rate reduced from 0.34% to 0.27%

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Allocation and apportionment changes for
TY 2012
► California — annual election for single sales factor (SSF) still available
for 2012
► Minnesota — continued phase-in of SSF (3.5/3.5/93% for 2012)
► New Jersey — begins phase-in of SSF (15/15/70% for 2012)
► New York City — continued phase-in of SSF (20/20/60% for 2012)
► Utah — continued phase-in of SSF (2012 = 10 x sales)
► Virginia — begins phase-in of SSF for retailers for tax years beginning
on or after 1 July 2012
► Virginia — continues phase-in of elective SSF for manufacturers

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Other state developments affecting
2012 returns
► Combined reporting
► North Carolina
► Department of Revenue adopted regulations regarding the Secretary of Revenue’s
authority to adjust net income or to require a combined return
► Rhode Island pro forma combined reporting for 2012
► Schedule CRS — Required Data for Combined Reporting Study (part of RI-1120C)
► Michigan CIT
► Michigan CIT replaces the existing Michigan Business Tax (MBT) effective 1
January 2012
► 2011 fiscal year filers required to file two short-period returns, one for
each tax — taxpayers can choose actual or annual method of filing
► Unitary and combined reporting
► Elimination of MBT NOLs
► Elimination of MBT credits (“certificated” credits continue if taxpayer elects to
continue to file MBT return until credits are exhausted)

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Other state developments affecting
2012 returns
► NOLs
► Colorado — limits amount to $250K for 2012–2013
► Illinois — amended the deduction suspension to allow a deduction not to exceed
$100,000, for a tax year ending on or after 31 December 2012 and prior to
31 December 2014
► Wisconsin — allows combined groups to share pre-2009 net business loss
carryforwards incurred by group members, effective for tax years beginning after
31 December 2011, with certain limitations
► Tennessee — related party add-backs
► Prior to 2012 taxpayers only had to disclose the existence of related party
intangible expenses in order to claim a deduction on the excise tax return
► For tax years ending on or after 1 July 2012, taxpayers are required to file an
application requesting permission to deduct intangible and related
interest expenses
► Unless permission is granted, taxpayers will not be allowed to deduct
these expenses

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TY 2012: new state business return
electronic filing mandates
► Taxpayer mandates
► Colorado — corporations and partnerships (any tax return that includes an
Enterprise Zone credit)
► Tennessee — corporations
► Virginia — corporations (e-file and e-pay)
► Preparer mandates
► Rhode Island — corporations and partnerships

25. Taxing authority audits — impact on
compliance and reporting

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IRS areas of emphasis — impact on
compliance and reporting
► Current IRS areas of emphasis impacting compliance and reporting:
► Uncertain Tax Position (UTP)
► Information Reporting and Withholding
► International
► Disclosures on Forms 8886 and 8275
► Issue management strategies
► Audit coverage expansion:
► Mid-market taxpayers
► Partnerships and Subchapter S
► The tax preparation process should include consideration of issues potentially
of interest to the IRS for two reasons:
1. More efficient — it will cost significantly less in resources to assemble the
information now rather than attempting to locate and analyze the needed
information three or more years later after filing
2. The IRS has tightened its Information Document Request process promising to be
more aggressive when information is not provided on time including threats to
issue a summons

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IRS areas of emphasis — impact on
compliance and reporting
► Identity issues that may be of interest to the IRS during compliance process:
► Issues you have that are areas of IRS focus
► Issues that were raised or considered in a prior examinations
► Any new material or significant issues, e.g., a major merger and acquisition
► Consider a pre-filing agreement or other process that will provide certainty
and eliminate the need for a UTP disclosure
► For the issues remaining
► Associate the risk of a potential IRS issue in light of your current year fact pattern
► Consider materiality and uncertainty that are known to be a high risk
► Get a sense for the information the IRS will seek for the issues you believe at risk
► Look at the issue from the perspective of the IRS

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Audit documentation examples
► R&D credit
► Review the information requested in published IDR’s used in R&D examinations
► Foreign tax audits
► Keep documentation showing actions taken in challenging the foreign examination
► Foreign payments — withholding at source
► If an IRS review of this area is likely, keep a run of all payments to foreign persons
► Transfer pricing
► Update transfer pricing documentation study
► Standard opening IDR

29. Future tax return reporting developments

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What to expect for TY 2013 and future
► Impact of American Taxpayer Relief Act of 2012
► Extension through 2013 of credit for increasing research activities with technical
changes to controlled group rules and when a trade or business changes hands
► Extension of 50% bonus depreciation through 2013 (2014 for certain long
production period property and transportation property)
► Election to accelerate AMT credits in lieu of bonus also extended
► State
► Proposed alternatives to corporate income tax
► Continued suspension or limitation of NOL usage
► Combined reporting to increase or stall
► Economic nexus
► Phase-in of SSF
► Repeal of Multistate Tax Compact

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Tangible property regulations
► Final regulations expected early summer
► Government focused on portions of the regulations:
► De minimis rule, dispositions, routine maintenance safe harbor, and
clarifying examples
► Compliance in 2014 will be mandatory with optional staging of compliance available
in 2012 and 2013
► Consider Section 263A compliance
► Most taxpayers considering adequacy of their Section 263A compliance for
self-constructed assets and inventory
► Possibility of automatic method changes — government considering for purposes
of implementing the regulations
► Potential benefit as taxpayers review 263A
► Window periods for filing accounting method changes while under IRS exam

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New proposed Gain Recognition Agreement
(GRA) compliance regulations
► On 31 January 2013, IRS issued new proposed regulations that would amend
the existing rules under §§ 367(a) and 6038B governing the consequences to
US persons for failing to file GRAs and related documents
► New proposed regulations provide:
► Changing the requirement for taxpayers to establish reasonable cause when seeking
relief from gain recognition after failing to properly file a GRA to a standard based on
willful failure.
► Now require limited Form 926 (“Return by a US Transferor of Property to a Foreign
Corporation”) reporting with all GRAs.
► § 6038B penalty would now apply to GRAs and associated documents.
► Current reasonable cause standard would continue to apply to US transferors seeking relief from
the § 6038B penalty.

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State — TY 2013 changes
► California and Pennsylvania have mandatory SSF for most businesses
► Indiana corporate income tax rate reduced from 8.0% to 7.5% after 30 June
2013 and before 1 July 2014
► Minnesota, New Jersey, New York City, Utah, and Virginia continue phase-in
of SSF
► Oregon corporate excise tax rate change — 6.6% of the first $10 million of
taxable income and 7.6% of taxable income greater than $10 million for 2013
► Pennsylvania franchise tax rate reduced from 0.189% to 0.089%
(set to expire after 2013)
► West Virginia corporate income tax rate reduced from 7.75% to 7.0%
► West Virginia franchise tax rate reduced from 0.27% to 0.20%
(tax fully phased out after 2014)

34. Current developments: how work gets done

35. Eighth annual domestic tax conferencePage 34
100 years of the modern tax return
Gather data
put on form
Gather data
put on form
IRC is 16,000
pages,
5.6m words
Post WW II — first
computerized
accounting system
1913 2013
IRC was
400 pages
16th
Amendment
passes
1939 code 1954 code 1986 code1960 —
22M
corporate
returns filed
2002 — SOX
enacted:
impact on tax
accounting
1973 — first
large scale
(ERP) system
introduced
1981 — personal
computer for
business
introduced
277m
corporate
returns filed
1969 —
computerized
tax returns
1991
introduction
of World Wide
Web

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Key focus areas — how work gets done
„ Monitoring of tax and legislative developments
„ Proactive identification of tax planning opportunities and risk areas
„ Ongoing connection to subject-matter professionals in technical areas
Connection to specialized tax
technical expertise
„ Secure portal for information exchange and access to deliverables
„ Visibility and accessibility into the process
„ Centralized compliance and reporting calendar
„ Workflow enabled processes with sign-off
Document sharing and collaboration
„ Meaningful and impactful Integration of processes
„ Automation of “baseline” activities
„ Facilitate technical review
„ Leverage technology to enable
Process and technology development
„ Monitoring of compliance status and key performance
indicators (KPIs)
„ Regular reporting to key stakeholders (value focused)
„ Monitor technology changes in marketplace — leverage
„ Continuous improvement — part of DNA
Monitor and continuous improvement

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Resourcing tax functions
Companies are challenging and realigning their resources
Key
considerations:
► Core versus non-core
► Flexibility and scalability
► Budget and planning
► Fixed and variable cost
► Quality and risk
Outside tax resources
Internal non-tax resources
Shared service resources
Internal corporate
tax resources
Finding the
right balance

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Wrap-up
► Compliance is the end and the beginning of an effective tax reporting and
control framework
► End of the end-to-end, record-to-report process
► An integral part of the tax life cycle (planning, accounting, compliance
and controversy)
► Robust, well-managed compliance is the foundation for adding value to
the business
► Today’s — and tomorrow’s — technology tools provide opportunities to create
a well-managed compliance function using limited resources

39. Questions and answers

40. Thanks for participating