What you need to know going into the new year
The decade just passed was a watershed period for finance departments of U.S. corporations. Accounting chicanery cast a pall over the profession, and regulation forever changed the way tax professionals do their jobs.
As you gear up for the busy season ahead, here are seven tax trends and changes to keep top of mind:
1. Documentation. This past year, the IRS suddenly abandoned its assertion that GlaxoSmithKline had improperly deducted interest payments on its federal tax returns. Previously, the IRS argued that the payments were equity rather than debt and therefore should be treated as dividends subject to withholding. The situation showcased the importance of proper characterization of financial instruments as debt vs. equity. As Brad Rode of Grant Thornton LLP noted, large multinational companies “typically engage in intragroup financing transactions, the tax consequences of which must be managed, taking into account the affected jurisdictions.”
2. Anti-inversion regulation. Perhaps because of the administration’s tax proposals, the U.S. Department of Treasury and the IRS seem concerned that more U.S.-based companies may be interested in inverting — that is, forming a new foreign public parent corporation to hold the stock of the U.S. parent corporation. Treasury and the IRS, apparently determined to close any perceived loopholes, issued new anti-inversion regulations.
3. New gain-recognition regulations. In February of last year, the IRS issued clarifying section-367 gain recognition agreement (GRA) regulations that corporate taxpayers welcomed. “The primary issue under the previous GRA regulations involved situations in which a subsequent restructuring became necessary within the five-year GRA period,” says Mark Friedlich, editorial director for international tax, accounting and audit, and estate planning and wealth management at CCH.
4. Landmark transfer pricing decision. When the Xilinx case was decided by the U.S. Court of Appeals for the 9th Circuit in May, The Wall Street Journal described it as “the most important transfer pricing decision in this country in 20 years.” The 9th Circuit agreed with the U.S. Tax Court that the IRS’ proposed adjustment was not at arm’s length. The 9th Circuit, in reversing the Tax Court, held in favor of the IRS. The case has caused much concern in corporate America and among many foreign and U.S. tax advisors, and the court is has recently withdrawn its opinion in the case.
5. New five-year net loss carryback. Previously available only to small businesses, now big businesses can go back and offset net operating loss against income in the prior five years.
6. Defer tax on debt forgiveness. A new provision allows businesses to defer cancellation of indebtedness income. “If they’re in financial trouble, they might want to defer that income hit for a number of years,” says Mark Luscombe, JD, CPA, CCH’s principal tax analyst.
7. Expiring provisions. Several provisions expired at the end of 2009 that Congress may or may not extend. These include: the 50 percent first-year bonus depreciation designed to encourage businesses to purchase equipment, the research credit, and the 15-year depreciation of leasehold improvements.
This story is from the CCH e-newsletter Figures, written specifically for corporate tax professionals. Figures offers tips, tricks and ideas about how to increase your organization’s productivity and efficiency. Every issue also features insights with a corporate tax professional