IRS Commissioner Doug Shulman told a group of board directors attending a business conference that they need to hire outside tax advisors to help with tax risks and FIN 48 compliance.
After all, you have finance experts to help you understand the economic value of hedging transactions, and you need tax experts to help you understand the myriad and complex tax issues facing your company, said Shulman during a speech at the National Association of Corporate Directors Governance Conference.
Shulman acknowledged that in the post-Sarbanes-Oxley environment, corporations have invested significant time and resources on compliance issues. We recognize that many businesses are trying to get it right, he said. Positions taken in tax returns may be well-grounded and taken in good faith. Other tax positions taken may be more aggressive and use elaborately structured transactions or arrangements to push tax planning up to the edge, or beyond acceptable bounds.
Shulman discussed compliance with FIN 48, the Financial Accounting Standards Boards rules for accounting for uncertain tax positions in financial statements, noting that FIN 48 paints a picture of tax risk by indicating how much money a corporation has to book in tax reserves to reflect the risk should one or more of its tax positions go south.
The IRS commissioner suggested that board directors establish a mechanism to oversee tax risk as part of the governance process. He recommended they set a threshold confidence level for taking a tax position, and discourage opinion shopping by their tax departments by hiring an independent tax firm that has some direct dialogue with the board of directors to review major tax positions. Shulman also suggested that corporate boards address transfer pricing and the relative profit allocated to low-tax jurisdictions, and make sure they reflect real economic contributions made in those jurisdictions.
He noted that the IRS has in place a compliance assurance program, or CAP, in which a company can check with the IRS on whether it agrees on certain tax issues before a corporate return is filed. The program envisions full disclosure by the taxpayer in exchange for real-time tax certainty, said Shulman. Similarly, the IRSs Advance Pricing Agreement program allows a company to check on its transfer-pricing methodology before filing a return.
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