ASC 740-10-25-7 has the following provision: "When the past administrative practices and precedents of the taxing authority in its dealings with the entity or similar entities are widely understood, for example, by preparers, tax practitioners and auditors, those practices and precedents shall be taken into account." From a state tax perspective, to what extent are the states' lookback policies for non-filing widely understood? I am aware of Wisconsin's 10 year lookback but wasn't aware of others. Ideas?

Accounting Nexus State Income Tax
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Question Owner
The state tax nexus issue in question relates to an indemnification agreement where the seller will indemnify the company for any pre-closing taxes. The Company is able to file VDA's or to settle as this is the obligation of the seller. The Company is looking just to determine the ASC 740 treatment.
Reply 331 weeks ago
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Tax Professional Answers

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Brett Layton
This is tough one. Understandably States do not want to be pinned down and they also want to retain the right to decide on a case-by-case basis. The behavior of the state is likely inversely proportional to the amount of tax at issue. For small apportionment factors I would be inclined to try for more like five years. The trick here is to find a state that has a 5 year expression in writing and then attempt to apply this to other jurisdictions where the factors are small.
If your factors are not small and your business is profitable, I would give strong consideration to filing.
Sincerely, Brett Layton
Leave a Comment 331 weeks ago

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Michael Fleming
In situations where you have not previously been registered many states do not have a statute of limitations and in theory they can go back to the date you started doing business. In reality most states routinely go back 7-10 years. We keep an internal database for sales and use as well as income franchise look back periods. If anyone needs help with a particular state let me know.

In addition if you find you have "nexus" and have past exposure do not wait for the state to find you. If you do it will usually be too late to mitigate your exposure. There are Voluntary Disclosure Programs (VDAs) where the state will reward you for stepping forward. These VDAs in most instances will limit the look back period to 3-4 years. They also have provisions to waive 100% of the penalty and in a handful of states some or all of the interest. These VDAs are usually done on an anonymous basis by a third party. If anyone would like more information let me know.
Leave a Comment 314 weeks ago

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