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  • Presenting a live 110‐minute webinar with interactive Q&A

    State Corporate Income Tax Audits:  Preparing the Case Anticipating Critical Planning and Documentation Needs for State Examinations

    1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

    THURSDAY, JANUARY 20, 2011

    Today’s faculty features:

    1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

    Jeff Blum National Leader Multistate Tax Controversy Practice Deloitte Tax MiamiJeff Blum, National Leader, Multistate Tax Controversy Practice, Deloitte Tax, Miami

    Nicole Crighton, Principal, KPMG, New York

    Walter Nagel, Partner, Reed Smith, Washington, D.C.

    For this program, attendees must listen to the audio over the telephone.

    Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10.

  • Continuing Education Credits FOR LIVE EVENT ONLY

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    Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.at 1 800 926 7926 ext. 10.

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  • St t  C t  I  T  A dit  State Corporate Income Tax Audits:  Preparing the Case Webinar

    Jan. 20, 2011

    Nicole Crighton, KPMG [email protected]

    Jeff Blum, Deloitte Tax [email protected]

    Walter Nagel, Reed Smith [email protected]

  • Today’s Program

    Pre-Audit Best Practices [Jeff Blum]

    Slide 6 – Slide 16

    Best Practices During The Audit [Nicole Crighton]

    Slide 17 – Slide 32

    Best Practices After The Audit [Walter Nagel]

    Slide 33 – Slide 42

  • PRE AUDIT BEST PRACTICES Jeff Blum, Deloitte Tax

    PRE‐AUDIT BEST PRACTICES

  • Transfer Pricing Audits

    • Several separate reporting company states have retained outside contractors to identify taxpayers that may be appropriate targets for transfer pricing adjustments. One contractor has applied for a state transfer pricing audit patent.

    Copyright © 2011 Deloitte Development LLC. All rights reserved.7

  • Transfer Pricing Audit Methodology Patent

    A system and method are provided for analyzing tax avoidance of a taxpaying entity. A taxpaying entity’s financial information may be analyzed and used to compute a set of one or more financial ratios based at least in part on the entity’s return on assets, capital, sales, and/or operating expenses. Those ratios may be compared to corresponding ratios for related firms operating in a pre definedcompared to corresponding ratios for related firms operating in a pre-defined industry to identify whether the taxpaying entity engages in tax avoidance. The level of the taxpaying entity’s tax avoidance may be calculated from analysis of the taxpaying entity’s controlled transactions An adjusted tax liability may bethe taxpaying entity s controlled transactions. An adjusted tax liability may be produced after redistribution, re-apportioning or re-allocation of income, deductions, credits or allowances.

    Copyright © 2011 Deloitte Development LLC. All rights reserved.8

  • Transfer Pricing Audits The transfer pricing firm lists the following jurisdictions as its clients:

    - Alabama

    - Minnesota

    - CaliforniaCa o a

    - Connecticut

    - Los Angeles

    - New Jersey

    - Rhode Island

    - District of Columbia

    Copyright © 2011 Deloitte Development LLC. All rights reserved.9

  • Forced Combination

    States are increasingly asserting forced combinations.

    Wal-Mart Stores East Inc v Hinton: Forced combination between retail storeWal-Mart Stores East, Inc. v. Hinton: Forced combination between retail store company and captive REIT

    Court also upheld 25% under-reporting penalty.p p g p y

    Copyright © 2011 Deloitte Development LLC. All rights reserved.10

  • Economic Substance And Business Purpose

    - Wisconsin

    - Connecticut

    - California- California

    - New York

    - Texas

    Copyright © 2011 Deloitte Development LLC. All rights reserved.11

  • Uncertain Tax Positions And Tax Accrual Workpapers

    IRS Announcement 2010-98 • Taxpayers required to report uncertain tax position

    IRS form • Statement for the rationale behind uncertain tax position • Statement of reasons why a tax position is uncertainStatement of reasons why a tax position is uncertain • Quantification of maximum adjustment associated with the position

    Announcement 2010-76 expands and clarifies policy of restraint with p p y respect to tax accrual workpapers

    What will states do?

    Copyright © 2011 Deloitte Development LLC. All rights reserved.12

  • Pre-Audit Planning

    Know your filing position • How is your system sourcing receipts? • How is this documented?How is this documented?

    Review prior audit history • Reliance on previous results, correspondence or agreement with theReliance on previous results, correspondence or agreement with the

    state • Unresolved issues still under protest?

    Gather intelligence and data • What are state hot button issues? • Is your documentation sufficient?

    Copyright © 2011 Deloitte Development LLC. All rights reserved.13

    Is your documentation sufficient?

  • Pre-Audit Planning (Cont.)

    Refunds and other offsetting claims • Are there open federal periods? • Will an extension help? • Interest is usually a factorInterest is usually a factor

    Know the rules • Will the state “net” the refund against assessment, or is a separate claim g , p

    required? • Whose refund is it? Unitary group vs. individual entity

    Copyright © 2011 Deloitte Development LLC. All rights reserved.14

  • Pre-Audit Planning (Cont.)

    Inconsistent positions

    • Are the positions truly inconsistent?

    I h diff i h d i h ?• Is there a difference in the tax statutes and taxing schemes?

    • Can a state require you to produce copies of other state returns?

    • Does the inconsistency create nowhere income or multiple deductions?

    • Potential to reduce assessed amount

    Copyright © 2011 Deloitte Development LLC. All rights reserved.15

  • Contacts

    Jeffrey S. Blum National Leader Multistate Controversy Tax Services 305-808-2360 [email protected]

    This presentation contains general information only and the respective speakers and their firms are not, by means p g y p p , y of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation.

    Copyright © 2011 Deloitte Development LLC. All rights reserved.16

  • BEST PRACTICES DURING THE  Nicole Crighton, KPMG

    BEST PRACTICES DURING THE  AUDIT

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    The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be

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