A View of The IRS Through Corporate Insider Eyes – Corporate Tax Audit Survival – Part 6

Reference Cliff Jernigan's eBook Corporate Tax Audit SurvivalThis is Part [6] of a series of a Chapter in the eBook “Corporate Tax Audit Survival – A View of The IRS Through Corporate Insider Eyes” by Cliff Jernigan.

You can download the entire eBook here.

Sample From Chapter 4: “I am From Mars”

Because of my experiences in the private sector, I sometimes had difficulty fitting into the IRS fabric.

One example of this involved the high-profile debate about whether stock options should be expensed for financial statement purposes. This issue was extraordinarily intense during the 2003-2004 time period, with the Financial Accounting Standards Board (FASB) arguing that stock options should be reflected as an expense on the financial statements while industry argued that they should be reflected as an item on the balance sheet. Most employees in the high-technology sector agreed that they should be reflected as an item on the balance sheet, and I strongly supported the high-technology position.

This topic has no bearing on the filing of a corporate tax return. For tax return purposes, stock option exercises usually are treated as an income tax expense.

My colleagues in the IRS often would argue about this issue over lunch or at other meetings. Almost universally they would take the position that stock options should be treated as an expense for financial statement purposes. I would counter that, in all of my experiences in the high-technology area, it was better not to make this change. They would smile at me (some would glare) as if I did not know what I was talking about. It would have been a futile exercise to try to persuade them otherwise. I would have been like the lone Republican in the House of Representatives trying to persuade the 434 Democrats in that body that they were wrong on an issue. Conversations like these made it clear to me that I might as well be from Mars.

Another time, I was engaged in a discussion about depreciation of telecommunication equipment. It seemed apparent to me that the equipment at issue was similar to high-technology equipment that, by statute, has a depreciation period of five years. At this point, telecommunication equipment was not clearly covered by statute, and the IRS contention was that the equipment had a ten-year life.

I argued that depreciation is merely a timing issue, meaning that it is just a cash flow issue for the government and does not result in lost taxes. On the other hand, the benefit of faster cash flow through faster depreciation means a lot to capital-intensive telecommunications companies.

I also felt that a ten-year life was not competitive relative to depreciation programs for telecommunications companies in other countries. My IRS colleagues had the power to help U.S. international competitiveness if they would agree to five-year depreciation.

They paid lip-service to me but finally chose to apply the ten-year life. Clearly they had decided that I was from some other planet.

While I may indeed have come from Mars, I believe that some of my thinking, and my deportment, may have had an influence on the IRS executive team. Toward the end of my term, I found that they listened to me more often. The meetings seemed to be shorter and more to the point. And I noticed that they sought my advice more frequently.

In accordance with Circular 230 Disclosure

Aaron C. Giles is the Founder and President of Agile Consulting Group. Aaron spent five years working within the specialty niche of Sales & Use Tax at Brown & Associates before forming his own firm in 2005. He has worked hundreds of audits in states all across the U.S. during that time and has delivered savings of over $75M in the form of refunds and credits to his clients. Today, he leads a group of talented, detail-oriented colleagues who focus exclusively on Sales & Use Tax.

Some of our firms’ greatest achievements have come in successfully arguing new and unique perspectives to existing tax law in various states enabling our clients to claim exemptions on categories of purchases previously held to be taxable. Included in these victories are: communication services taxes for religious nonprofit hospitals in FL, bulk purchases of drugs in VA, specific surgical tools and instruments for healthcare providers in TX, printing plates in GA, railroad utilities in KY, and most recently software in AL.

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