The company must determine the realizability of the deferred tax asset calculated in order to determine the amount of valuation allowance that a company should record.  A valuation allowance reduces the deferred tax asset to an amount that is “more likely than not” to be realized.  This can have a direct effect on the income statement through the amount of deferred tax expense or benefit recorded.  The effect of any recording or releasing a valuation allowance occurs discretely in the period that the determination is made.

All deferred tax assets should be evaluated to determine the need for a valuation allowance based on specific facts and circumstances.  The types of deferred tax assets that should be evaluated include not only tax attributes with finite carryforward periods such as net operating loss or tax credit carryforwards, but also other deferred tax assets that result from cumulative book and tax temporary differences.  These types of deferred tax assets may ultimately reverse and increase the amount of net operating loss carryforward in a future period.

When evaluating the need for a valuation allowance, all pertinent evidence should be considered, both positive and negative.  Generally evidence is based on the ability to objectively verify through current transactions, such as the ability for a company to carryback net operating loss to a period with taxable income.  The existence of future taxable temporary differences will reverse in the net operating loss carryforward period.  Evidence that cannot be objectively verified based on future events are subjective in nature and therefore not weighed as heavily.  Examples of this type of evidence include future taxable income based on projections and tax planning strategies that a company could initiate to avoid the expiration of a tax attribute, such as a net operating loss carryforward.

A history of cumulative losses (generally defined as book loss plus permanent differences for the current and two prior tax periods) is a particularly negative item of objective evidence. A company may be unable to justify not recording a valuation allowance that reduces or eliminates a deferred tax asset. 

Nevertheless, a cumulative loss history is not a bright line test; all evidence must be considered.  For example, if the company can demonstrate that it has taxable income in a prior period that can absorb net operating loss when carried back, a history of cumulative losses would not cause the company to record a valuation allowance.  Similarly if the company can make a compelling argument that it could employ a tax planning strategy that would be both prudent and feasible and would effectively create future income that would absorb a net operating loss carryforward, this also could outweigh the negative evidence of a cumulative loss history.

For question regarding ASC-740 provision matters, please contact Daniel DeLau at 720-227-0065 or delau@taxops.com or John Monahan at 720-227-0064 or jmonahan@taxops.com.

The largest owner of shopping malls in the U.S., Simon Property Group, is taking on retail giant Amazon in the Indiana courtroom. Simon Property Group has filed suit against the state of Indiana in an effort to force the state to collect sales taxes from online retailers.

Leading up to the lawsuit, Simon Property Group requested that Indiana require sales tax to be collected on Amazon.com purchases within the State. Quill Corporation v. North Dakota, 112 S. Ct. 1904 (1992) established that a company must have physical presence for a sales tax collection obligation. While Amazon has a physical presence with its three distribution centers, Indiana and the Company have an agreement that exempts Amazon from collecting and remitting sales tax.

The courts will have to decide whether Amazon and other online and catalog retailers meet various states’ rules for sales and use tax collection and remittance. Meanwhile, Congressional legislators have taken up once again the issue of closing the online sales tax loophole at the federal level. Should the latest bill succeed, states will have the option of requiring online retailers to collect and remit sales tax.

Click on link to read:  Federal Bill Would Close Online Sales Tax Loophole

For questions regarding SALT issues, please contact Meredith Theiss at 720-227-0064 or mtheiss@taxops.com.

If number of bills is any indication, Congressional will for federal sales tax legislation is alive and well. On November 9, 2011, the third of three federal bills that would authorize states to require remote retailers to collect sales taxes on sales to in-state customers was introduced in Congress. The Marketplace Fairness Act (S. 1832), was introduced by a bipartisan group of 10 Senators. If enacted, the bill would give states the option to collect the sales taxes they are owed under current law from out-of-state businesses, rather than rely on consumers to pay those taxes to the state. The law differs from prior iterations by the breadth of bipartisan support and the latitude the bill give states to choose whether or not to collect sales taxes, thereby preserving states’ rights.

Under the Supreme Court’s 1992 Quill decision, retailers are required to collect sales tax in the states where they have a physical presence, while consumers are required to pay use tax on products where sales tax was not collected. The result puts local retailers at a competitive disadvantage because they must collect sales taxes at the point of sale, while out-of-state businesses, including Amazon and other online retailers, in effect give their customers a discount by not collecting sales tax.

The new bill provides two options by which states could collect sales taxes from online and catalog purchases. Using a new, simplified tax system, the bill would authorize the 24-Streamlined Sales and Use Tax Governing Board member states to impose a sales tax collection duty on out-of-state remote retailers. Non-Streamlined members would have the same authority for adopting minimum simplification requirements. For example, a state wishing to exercise this authority would be required to have a single state-level agency administer, collect and audit all sales taxes, including local sales taxes.

The bill also requires the use of a uniform tax base for state and local taxes. States would need to put in place software to help remote sellers identify the applicable rate and must hold remote sellers harmless if they relied on state-provided information. States would also be required to certify qualifying entities that provide approved compliance services to sellers.

Remote sellers under the bill would need to collect using the applicable destination rate, which is the sum of the state rate and the applicable local rate. In intrastate sales, states would be allowed to use origin sourcing under the SSUTA. Sellers with annual gross receipts of $500,000 or less of sales in the preceding year would not be subject to the collection and remittance requirements. The bill would mandate that any local rate changes could only be effective on the first day of the calendar quarter.

With pressure building on lawmakers to do something in a largely stalemated session, this bill offers an opportunity for Congress to demonstrate they are, in fact doing something for business and states. Stay tuned for further developments.

Click on link to read:  Shopping Mall Owner Sues Indiana over Amazon Taxes

For questions regarding SALT issues, please contact Meredith Theiss at 720-227-0064 or mtheiss@taxops.com.

On November 21, 2011, the President signed into law two new tax credits. The Returning Heroes Tax Credit is a new hire tax credit. Employers who hire veterans who have been unemployed at least 4 weeks are eligible for a new credit of 40 percent of the first $6,000 of wages (up to $2,400). Hiring a veteran that has been unemployed longer than 6 months could result in a tax credit of 40 percent on the first $14,000 of wages (up to $5,600).

Separately, the Wounded Warrior Tax Credit doubles the existing tax credit for long-term unemployed veterans with service-connected disabilities. The existing Work Opportunity Tax Credit for veterans offers employers a maximum credit of $4,800 for hiring veterans with service-connected disabilities. The new Wounded Warrior credit is 40 percent of the first $24,000 of wages (up to $9,600) for firms that hire veterans with service-connected disabilities who have been unemployed longer than 6 months.       

The credits are intended to incent employers to hire the growing number of veterans, particularly those who have been unemployed for some time. According to White House data, approximately 240,000 veterans of the wars in Iraq and Afghanistan remain unemployed, while a total of 850,000 veterans overall are out of work. To compound the problem, the Obama administration reports that 1 million other service members are expected to return to civilian life by 2016.

Under the Act, employers will be able to claim the credits for qualified veterans who begin work for the employer after Nov. 21, 2011 and before Jan 1, 2013. The new legislation also provides job training to help returning vets return to work.

During the past year, several tax law and administrative changes have affected S corporations and their shareholders. According to a report published by Stewart Karlinsky and Hughlene Burton (October 1, 2011), these changes include:

• The IRS’s Fast Track Settlement Program was extended to SB/SE taxpayers in certain locations, including S corporations.
• A number of the various tax legislation packages that passed Congress during the past year will have a direct or indirect effect on S corporations and S corporation shareholders.
• S corporations currently will not be required to report uncertain tax positions on new Schedule UTP, Uncertain Tax Position Statement.
• Several courts issued opinions in cases involving shareholder basis in loans to an S corporation and the Sec. 1366(d) basis loss limitation rules.
• The potential zero capital gain rate (available since 2008) was extended through 2011 and 2012 and continues to be an attractive tax planning tool that may affect S corporations and their shareholders’ behavior.

A summary of select report findings are below. The report is available at http://www.aicpa.org/publications/taxadviser/2011/october/pages/karlinsky_oct2011.aspx – fn_.

Fewer S corporation returns are examined than those of individuals

For individual tax returns filed in 2009 and audited in fiscal year 2010, the IRS audited 1.1% of filed Forms 1040, with 30% of those audited including an earned income credit. Of individual returns examined in 2010, 78% were correspondence audits.  The IRS audited individual taxpayers with total positive income of greater than $1 million at a rate of 8.4%.

Fast Track Settlement Program Extended to SB/SE Taxpayers

Many S corporations are clients of the IRS’s Small Business/Self-Employed (SB/SE) Division (i.e., they have less than $10 million in gross assets). The IRS expanded this program to include SB/SE taxpayers at IRS offices in eight locations: Chicago, Houston, St. Paul, Philadelphia, central New Jersey, and three California cities: San Diego, Laguna Niguel, and Riverside. This program is intended to facilitate efforts by certain taxpayers and the IRS to settle issues in open tax years under exam, with an auditor and Appeals together in the same room. The expansion was effective December 1, 2010.

Capital Structure Reporting

Another important administrative change was the January 1, 2011, effective date of Sec. 6045B, which requires any change in the capital structure of a corporation (including S corporations) to be reported within 45 days to the government and by January 15 of the following year to each holder of stock, bonds, or notes or their nominees. These rules cover corporate spin-offs and reorganizations.

The government recently revised Form W-9, Request for Taxpayer Identification Number and Certification, to better distinguish S corporations from C corporations. This was done because beginning in 2012, under the Sec. 6045 disclosure rules, if a “covered security” (including specified securities acquired through a transaction in the account in which such security is held) is acquired by an S corporation, adjusted basis reporting is required.

Increase in Penalties for Nontimely Filing of Form 1120S or Missing Information

For tax years beginning after December 31, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 more than doubled the Sec. 6699 penalty, from $89 to $. This penalty applies per shareholder per month (not to exceed 12 months) if the S corporation does not timely file its Form 1120S, U.S. Income Tax Return for an S Corporation, or fails to provide information required on the return.

Uncertain Tax Position Disclosures

Beginning with the 2010 tax year, entities with more than $10 million in gross assets were required to disclose on their tax returns FIN 48 uncertain tax position information. The IRS subsequently increased the initial gross asset threshold for reporting to $100 million, with a phased-in reduction to $50 million starting with 2012 tax years and $10 million starting with 2014 tax years. The final instructions to the new Schedule UTP, Uncertain Tax Position Statement, do not require S corporations to file the schedule.

Controlled Groups

T.D. 9522 was finalized on April 8, 2011, and became effective on April 11, 2011. It distinguishes a controlled group under Sec. 1563 from the affiliated group rules of Sec. 1561 and has an important impact on S corporations. Many practitioners believed that because S corporations were defined as “excluded corporations,” two controlled S corporations could each take a maximum Sec. 179 deduction and pass those through to their shareholders. The new final regulations state that S corporations are excluded corporations for Sec. 1561 purposes, such as Sec. 11 tax rates or accumulated earnings tax and the alternative minimum tax (AMT) exemption (which would not apply anyway). S corporations are members of a controlled group for Sec. 1563 purposes (see Regs. Sec. 1.1563-1(b)(4), Example (4)), which would also cover Sec. 179, Sec. 41, and other areas of the tax law. To be a controlled group under these provisions, a company must meet the test of having five or fewer shareholders that own 80% of the stock or its voting power, as well as the 50% identical ownership test.

Due Dates of Flowthrough Entity Tax Returns

IRS issued changed the extension due date of calendar-year partnership, trust, and estate income tax returns to September 15. However, the change does not apply to the original due date, nor does it apply to S corporations.

Tax Relief Act Implications

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) was signed into law on December 17, 2010. It extended the capital gain and dividend 15% tax rates for 2011 and 2012 and extended the AMT patch for 2010 and 2011 ($47,450 for single filers and $72,450 for married filing jointly for 2010). It reduced the Social Security rate for employees and the self-employed for 2011 and extended the suspension of the itemized deduction and personal exemption phaseout for 2011 and 2012. Notably, for assets acquired and placed in service on or after September 9, 2010, and before January 1, 2012, it allows Sec. 168(k) bonus depreciation at 100% instead of the previous 50%.

Zero Capital Gain Rate

Besides extending the 15% capital gain rate, the Tax Relief Act also extended the zero rate for individual taxpayers in the lower two tax brackets. Consequently, taxpayers should consider gifting appreciated S corporation stock to their children, grandchildren, or parents.

Small Business Jobs Act

The Small Business Jobs Act of 2010 expanded the dollar amount of new or used tangible personal property that a taxpayer may expense in the year placed in service under Sec. 179 to $500,000 for 2010 and 2011. The deduction phases out between $2 million and $2.5 million in property acquired in the tax year. Tax professionals should note that the requirement of sufficient positive business income still applies. If the income (including salary) is not sufficient, a carryforward is permitted. In an expansion of the provision, $250,000 of the $500,000 property acquired can apply to qualified leasehold, retail, and restaurant improvements. This category of assets has a 15-year life, so taxpayers will probably choose to apply Sec. 179 to these assets first. If the income limitation is applied for 2010, this category of asset carryover may be used in 2011, but unless the provision is extended, the carryover may not be used beyond 2011.

Another major change enacted by the Small Business Jobs Act is the ability to carry back eligible small business general business credits, such as research and development or rehabilitation credits created in 2010, for five years instead of the normal one, and they may offset AMT liabilities. An eligible small business includes non–publicly traded corporations (including S corporations), partnerships, and sole proprietorships with less than $50 million in gross receipts in the three years prior to 2010. However, S corporation shareholders and partners of a partnership must meet the gross receipts test as well.

HIRE Act

The Hiring Incentives to Restore Employment Act of 2010 (the HIRE Act) provided a payroll tax holiday from March 19, 2010, to December 31, 2010, for employers for each new nonrelated hire between February 4 and December 31, 2010, that had not been employed more than 40 hours during the previous 60 days or longer. As an additional incentive, if the employee continues to be employed for 52 weeks, the employer receives a credit of the lesser of 6.2% of the wages paid to the retained employee during the 52-week period or $1,000. Because the credit is taken in the first tax year that the 52-week requirement is met, calendar-year taxpayers will take the credit in 2011.

BIG Tax Holiday

The Small Business Jobs Act also modified Sec. 1374 for 2011. If 2010 was the fifth tax year in the recognition period, no tax would be imposed on recognized BIGs for 2011. For 2009 and 2010, the American Recovery and Reinvestment Act of 2009 enacted Sec. 1374(d)(7), which also somewhat reduced the stress and impact of Sec. 1374. This provision exempted Sec. 1374’s BIG tax from being imposed in the tax year that was preceded by the S corporation’s seventh year of the recognition period.

Banks and Sec. 291(a)(3)

When a corporation converts from C to S status, it needs to be aware of the impact of Sec. 291. This tax provision is a vestigial organ of the pre-1986 corporate add-on minimum tax, but it still applies today.

IC-DISC Tax Rate Arbitrage

Most practitioners are aware that when investment interest expense is less than net investment income, a tax planning opportunity can be exploited by increasing investment interest expense and investing in dividend-paying stocks to play the tax rate differential. Less well known is using an interest charge domestic international sales corporation (IC-DISC) to net the same results for companies that produce products in the United States that they sell overseas.

For questions regarding business entity issues, please contact Meredith Theiss at 720-227-0064 or mtheiss@taxops.com.

Congress’ failure to act by Thanksgiving leaves many major tax-code issues unaddressed for year-end. Income-tax rates, capital-gains rates, estate-tax exemptions and rates, and the alternative minimum tax issues have been deferred to 2012.

According to the Wall Street Journal (Weekend Investor, 11/26-11/27), absent Congressional action, a number of significant tax changes will expire at the end of 2011.

• Social Security 2% payroll-tax cut for employees.
• Alternative-minimum tax waiver that otherwise would have imposed an AMT at a 26% or 28% rate on taxpayers with high deductions for state and local taxes, miscellaneous deductions, personal exemptions and incentive stock options. Without action, the AMT will be expanded to millions more taxpayers in 2012.
• Charitable contribution up to $100,000 of IRA assets for people older than 70 ½. Gifts are excluded from income.
• Special depreciation benefits. Sole proprietors and other businesses reporting on Schedule C of a personal return should check expanded write-offs that become less generous at the end of 2011. Bonus depreciation is also changing according to IRS Publication 946.
• State sales-tax deduction in lieu of income tax deduction.
• Mortgage-insurance premium deduction.
• $4,000 higher-education deduction.
• Schoolteacher-expenses deduction up to $250.

 By the end of 2012, additional tax changes will occur if Congress does not address important tax issues.

• Top 35% income-tax rate
• Top 15% capital-gains rate
• Current estate- and gift-tax rates and exemption
• American Opportunity Education Credit

 In 2013, a number of tax increases will automatically take effect.

• 3.8% tax on net investment income for joint filers with more than $250,000 adjusted gross income ($200,000 single). The levy applies to taxable interest, dividends, rents, some annuities, royalties and capital gains, including the sale of a house after a $500,000 exclusion ($250,000 for single filers).
• Personal-exemption phaseout
• “Pease” limit on itemized deductions of 3% of itemized deductions – including charitable gifts – for upper-income taxpayers. Current rules allow a deduction up to 50%, 30%, or 20% of adjusted gross income, depending both on the recipient and type of property donated. In general, the 50% limit applies to gifts of cash and the 30% limit to appreciated assets. Gift-givers can avoid capital-gains tax and realize a full deduction for gifts such as shares of stock that appreciate in value.
• Flexible-spending account limit of $2,500 (down from typical $5,000)

On October 26, Ways & Means (W&M) Chair Dave Camp (R-MI) released a draft proposal for international tax reform. Two prominent features of the proposal are reducing the maximum corporate tax rate from 35% to 25%, for tax years beginning after Dec. 31, 2012, and shifting the U.S.’s international tax regime from a worldwide system to a territorial-based system. 

In shifting to a territorial system, the plan would specifically exempt 95% of overseas earnings from U.S. tax when profits are brought back to the U.S., by implementing a 95% deduction for the foreign-source portion of dividends received from controlled foreign corporations (CFCs) by domestic corporations that are 10% U.S. shareholders and that have held the underlying stock for at least one year. It would also allow existing overseas profits to be brought back to the U.S. at a 5.25% rate, which is in line with current repatriation proposals. According to Rep. Camp, this would encourage companies to reinvest their profits in the U.S. and make American companies more competitive. 

Additionally, the plan would treat foreign branches of U.S. parent companies as CFCs for which the 95% dividends-received deduction is available, tax royalties paid by a CFC to the U.S. parent at a maximum 15% rate, and treat certain types of passive and highly mobile income as currently included in the U.S. parent’s taxable income, whether or not repatriated, and allow FTCs for them. 

A number of issues, including dual consolidated losses and tax treaty implications, were not addressed in the draft and may require resolution before any of the proposals are finalized. Among the issues to be worked out are:

• how to best protect the U.S. tax base while minimizing the effect on the competitiveness of American businesses;
• the pros and cons of treating foreign branches as CFCs, as opposed to disregarded entities; and
• how to treat foreign partnerships with U.S. corporate partners owning at least 10% interests.

Carried interest changes were a strong point of contention when last proposed. They are back on the table today as a result of the proposed American Jobs Act.  Although wholesale passage of the Jobs Act has been blocked in the Senate, individual pieces may still have life as separate bills, including carried interest taxation.     

The Administration’s $447 billion job creation plan included a proposal to tax carried interests as ordinary income rather than capital gains. Although this tax treatment has been proposed multiple times before, the Administration’s support is the latest in a long line of attempts to change the tax treatment of carried interest.               

In general, the legislation characterized carried interest income and gain as ordinary income, and would apply to interests in traditional hedge funds, private equity funds, venture capital funds, and real estate funds. It would also continue to treat gain on the sale of such interests as ordinary income. The specified asset definition has not changed significantly, and includes securities, real estate held for rental or investment, interests in partnerships, commodities, cash or cash equivalents, as well as options or derivative contracts with respect to those assets. 

A “carried interest” is a financial interest in the long-term capital gain of an asset given to a general partner (GP) by the limited partners (LPs), or investors in the partnership. It is paid if the asset is sold at a profit that exceeds the agreed upon returns to the investors. This serves to align the interests of the GP with the investors by allowing the GP to share in the “upside” of the asset, and to compensate the GP for the substantial risks taken during asset development and during the period prior to sale of the asset. Carried interest has traditionally been treated as capital gains income taxed at favorable capital gains rates. 

Similar carried interest proposals have been passed by the House of Representatives several times over the past several years, but have failed to pass in the Senate. Representative Sander Levin (D-Mich), a senior member of the House Ways and Means Committee and later chairman, introduced legislation in 2008 to change the tax treatment of carried interest from capital gains to ordinary income. Supporters of the legislation described it as eliminating a loophole used by Wall Street private equity and hedge fund managers to avoid taxes. However, the proposed partnership tax law might have more than doubled the tax rate on partnership’s carried interest, from 15 percent to nearly 35 percent. 

In addition to including the tax hike in the Jobs Act, President Obama has also called for the Joint Select Committee on Deficit Reduction to include a carried interest tax increase as a revenue raiser in deficit reduction package it develops. 

There was a concern that earlier versions of the legislation could have applied to interests in certain entities organized as partnerships other than investment funds (e.g., partnership holding companies, boutique investment banks, or other businesses organized as partnerships that are operating businesses). The proposed legislation introduces a concept of an “investment partnership” and a revised definition of “investment services partnership interest” (ISPI) that, while ambiguous in some respects, serve in many cases to narrow the application of the proposed rule change.  

As a result of these changes, the treatment of gain on the sale of an interest in a partnership that serves as an investment manager but also owns a carried interest, fee waiver or other interest in the underlying investment funds it manages is not entirely clear and may depend on the specific facts of the particular transaction. At a minimum, any gain attributable to fee waiver, carried interests or similar interests will be ordinary income. Under the revised proposal, however, sales of interests in many operating businesses structured as passthroughs that might have been caught by prior versions of the legislative language will continue to be eligible for capital gains treatment, to the extent available under existing law. The proposed legislation would generally be effective in 2013.

States collected over 10 percent more in taxes in the second quarter, compared to a year earlier, according to report from the Nelson A. Rockefeller Institute of Government at the State University of New York. The increase was the biggest in six years but is unlikely to be sustainable.

Tax increases have played a sizable role in state revenue growth, the Rockefeller Institute said. New or higher taxes on gasoline and other fuels, for example, added about $8 billion, or 3.5 percent, to second-quarter collections. Higher car registration and park access fees also contributed to an increase in revenue.

In many states, these temporary tax hikes will soon expire. California, North Carolina and New York all have temporary tax increases that have expired or will end this year. State sales taxes, which account for about one-third of state collections, have started to slip as well as debt-burdened consumers reduce consumption.

State and local governments have not seen similar bumps in revenue collections. Local taxing authorities rely on revenue from property taxes, which continue to decline years after housing prices turn bearish. Local property taxes fell one percent in the second quarter compared to a year earlier and are not expected to rebound soon.

For information about State and Local Taxes, please contact Meredith Theiss at 720.227.0064 or mtheiss@taxops.com.

An uncertain tax position is a tax position taken on a previously filed income tax return or included in the current year tax provision that has a less than a 50% chance of being sustained upon examination by the taxing authorities. The uncertain tax position occurs due to the considerable uncertainty surrounding the interpretation and application of various tax laws.

Tax positions can include, but are not limited to:

• Deductions
• Excluded income
• Character of income, such as capital gain versus ordinary income
• Choice to not file an income tax return in a certain tax jurisdiction
• Conclusion that a transaction is tax-free, such as a tax-free reorganization
• Tax treatment of entity, such as a partnership or S-Corp
• Method for calculating state apportionment

When determining the amount of uncertain tax position, it is important to recognize that under ASC 740, the identification applies only to uncertain income tax positions. Non-income “above-the-line” taxes are separately evaluated under different criteria.

There is a two-step process to determining an uncertain tax position. First, a recognition criterion is applied. For any portion of a tax position to be recognized, the position must be considered more-likely-than-not, or greater than 50%, to be sustained upon examination by a taxing authority. Detection risk cannot be considered in this equation. All positions must be assumed to be known by a taxing authority.

Second, if the tax position meets the recognition criteria, the amount realized from the tax position must be measured. Many tax positions are “binary,” meaning they are either fully sustained at the 100% level or not sustained at all. In other words, when assessed by a tax authority, a binary tax position will either result in acceptance of a tax filing position in full or its rejection. Other tax positions, such as a research and development credit, can be sustained somewhere between 50% and 100%. In this case, the amount realized is the largest amount that has a greater than 50% chance of being realized upon settlement. Interest and penalty should also be calculated, including interest related to improper timing on temporary items, on any uncertain tax positions identified.

If an uncertain tax position is determined, the effect can be to record a current or noncurrent payable for the amount of cash that would be due upon adjustment by a taxing authority. If no cash would be due upon adjustment by a taxing authority, the deferred tax balance sheet account would be adjusted instead. For example, when a company is in a net operating loss position, the applicable deferred tax asset would be reduced instead of recording a liability.

Uncertain tax positions can apply to temporary as well as permanent items. It is also necessary to reevaluate existing previously identified uncertain positions to determine if a change in facts and circumstances has occurred that would make it necessary to adjust. Positions that have been settled upon examination, for example, or positions that will remain unadjusted due to the statute of limitations expiring should be reduced to zero with corresponding income statement or balance sheet effects.

For question regarding ASC-740 provision matters, please contact Daniel DeLau at 720-227-0065 or delau@taxops.com John Monahan at 720-227-0064 or jmonahan@taxops.com.