Set the Tax Risk Objectives for the Future

SETTING TAX RISK objectives in the development of a long-term plan in delivering the tax risk management Tax Risk Management process should involve looking at two risk objectives—those at the strategic level and those that are operational. The strategic objectives will relate to the high-level goals set out in the Tax Risk Management strategy; the operational objectives will be around what happens on a day-to-day basis. Examples include the following:

• The tax manager must take responsibility for tax risk management issues with tax team (strategic objective)

• Implement tax planning strategies that will impact positively on the day-to-day business (strategic objective)

• Improve relationships with the IRS (strategic objective)

• Finalize on- and off-the-radar screen issues (operational objective)

• Limit the number of tax planning ideas in any one period (operational objective)

• Ensure that the tax manager is involved in any new transactions, operations, or changes in financial accounting above a certain predetermined limit (operational objective)

• External opinions must be obtained on any tax risk issues over a predetermined value (operational objective)

• The total provisioned tax risk should not exceed a predetermined percentage of the annual tax charge (e.g., 10%) (operational objective)

• The cost of any IRS audit must not exceed a predetermined percentage of the tax payable (e.g., 3%) (operational objective)

• Penalties for any reason on tax issues should not exceed a predetermined percentage (e.g., 1%) (operational objective)

Communication: Again!

SETTING TAX RISK strategic and operational objectives will determine where resources are to be focused and directed. When these objectives have been established they should be documented and communicated to the tax team in the business and those who are involved in delivering them. These objectives should be built into their individual performance objectives. They effectively become the target in designing suitable tax risk management controls. It is also useful to develop a common means of documenting and communicating the tax risk objectives to create familiarity with the information throughout the business.

In accordance with Circular 230 Disclosure