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August 20, 2017


CFOs Beware: Government Tax Monitoring Continues to Increase

The federal government and its agencies still have corporations and their executives, especially Chief Financial Officers (CFOs), in their sights. In particular, the IRS continues to develop rules that they hope will lead to better corporate compliance with tax laws or to uncovering aggressive tax schemes that corporations use to circumvent paying taxes. This trend extends to international tax dealings, too, so even companies with holdings in known tax-shelter countries are not safe. In the light of increasing government monitoring of tax reporting, what are CFOs doing to prepare their companies for potential structural changes?

Real Fears, Indecisive Actions

According to a recent tax survey by Grant Thornton, an audit firm, company executives are approaching the corporate tax compliance game very differently. In fact, most of the 500 CFOs and controllers who participated in the second quarter survey indicated that they were “less concerned with aggressive tax planning than with ‘timely and accurate tax return and financial reporting'” as their main tax priority. Only around 25 percent of those polled indicated tax savings or deferrals and tax rates as their chief concerns. These results show that CFOs struggle to find a balance between tax planning and maintaining tax compliance.

Changes Continue to Come

\While the comment period for a new IRS proposed rule on uncertain tax positions closed at the beginning of June, the controversy about the rule is ongoing. As it was proposed, the new rule mandates that corporations disclose the values of their tax reserves, which they are supposed to have in the event that state or federal tax officials change what is allowable treatment for particular taxes. While greater transparency seems to be the purpose behind the rule, the American Institute of Certified Public Accounts (AICPA) has strong feelings against requiring companies to report about their uncertain tax positions.

Ongoing Controversy

According to a recent article published by the AICPA regarding the rule proposed by the IRS on uncertain tax positions, the professional organization feels that it would compromise how financial statements are currently reported by companies. In addition, the burden the rule imposes on corporations, which is ultimately passed on to taxpayers, is not proportionate to the benefit the IRS might gain through knowing where companies stand in their tax preparedness. This in turn could tighten tensions between all impacted parties, namely the IRS, tax advisors and taxpayers, which may lead to a shift in how people report their taxes.