22nd Annual High Technology Tax Institute

The Crowne Plaza Cabaña4290 El Camino RealPalo Alto, CA 94306

November 6 & 7

IRS Practice & Procedure- the High Tech Examinee

Cherrilynn LeeTechnical Advisor, High Technology

Pre-Filing & Technical GuidanceLarge and Mid-Size Business Division

Internal Revenue Service

FIN 48 – Accounting for Uncertainty in Income Taxes

An Interpretation of FASB 109-Accounting for Income Taxes

Issued in June 2006 Effective for the first financial accounting year

beginning after December 15, 2006

Tax Benefit may be reflected in the financial statements only if… It is “more likely than not” that the company

will be able to sustain its tax return position: Based on its technical merits Assuming the return will be examined, and Assuming the taxing authority will have all

relevant facts

New IRS LMSB INITIATIVE: FIN 48 – Expedited Resolution of Uncertain

Tax Positions Not intended to produce a different result in the

resolution of tax issues than an examination One-time opportunity to adjust previously

reported tax positions through equity with no effect to the income statement

Will provide a quick resolution of a tax position prior to adoption of FIN 48

Will provide certainty with respect to some tax positions

Qualifications for the “FIN 48 – Expedited Resolution” Initiative

Accounting period beginning after December 16, 2006 and before April 1, 2007 April 1, 2007 on, normal resolution processes

are available on a non-expedited basis Qualifying Issues on:

filed returns under examination filed returns not under examination not yet filed returns

Who/What is Ineligible for “FIN 48 – Expedited Resolution”

Promoters of Listed Transactions Issues or transactions designated for litigation Issues or transactions in a court proceeding Issues or transactions that has a fraud

penalty Issues or transactions in a tax-related

criminal investigation Any other issue or transaction that in the

discretion of the Service is not acceptable

“FIN 48 – Expedited Resolution” Timeline & Deadlines

Deadline for seeking “expedited resolution” is 45 days prior to the financial accounting year-end date. (For example, the deadline for requesting resolution for a calendar year end is November 15)

Timeline for working the issue must be jointly created with the IRS

Date of the closing agreement between the IRS and TP may be no later than the last day of the TP’s current financial accounting year

Applying for FIN 48-EXPEDITED RESOLUTION

Taxpayer will provide: Name, EIN, Accounting Year End Date TP plans to resolve the Issue Summary of Issue and Facts Perjury Statement Acknowledgement that the IRS can look at

other tax issues

Taxpayer will eventually provide: All documents and all related legal and/or accounting

opinions Relevant legal authorities including contrary

authorities with citations Original documents that relate to TP’s Risk

Assessment of the uncertain tax position Where and how the uncertain tax position is reported

on the filed return or would be reported on a return yet to be filed

Direct access to TP’s knowledgeable personnel

Who to Contact if you are interested in FIN 48-EXPEDITED RESOLUTION…

Return Filed and Under Examination Team Manager

Return Filed and Not Under Examination Email/FAX or overnight, Melanie Perrin

Melanie.Perrin@irs.govFax: (202) 283-8406IRS Attn: Melanie PerrinSE:LMSB:PFT:PFTS801 9th St. N.W.Washington, D.C. 20001

Who to Contact if you are interested in FIN 48-EXPEDITED RESOLUTION…

Un-filed Returns, on site audit team Team Manager – request for a PFA If approved, the PFA fee will be secured

Un-filed Returns, no on site audit team Follow normal PFA procedures as provided by

Rev. Proc. 2005-12 Questions, call:

Melanie Perrin (202)283-8408 Gregory Zielinski (636)940-6921

Pre-filing Agreements (PFA) Initiative

Rev. Proc. 2005-12 Resolve specific issues before the tax return

is filed Available on current, past, and future 4

taxable years Eligible issues:

determination of facts, or the application of well-established legal

principles to known facts

Excluded Issues:

Transfer pricing issues Change in accounting method/period Pending request for a determination letter or

ruling Contrary to previously issued determination

letter or ruling to the Taxpayer Tax Shelter described in IRC 6662(d)(2)(C)(ii) Transactions that have not yet occurred

PFA User fee

Only if selected for the program Rev. Proc. 2006-1

$50,000

Document Management Issues

Information Document Requests (IDRs)Form 4564

SummonsesForm 2039

Attorney-Client PrivilegePrivilege log

Audit Cycle Theory & Approach

Statute ExtensionsForm 872-I

Closing AgreementsForm 906

Memorandums of Understanding