Jana Bacon has guided plenty of banks through the twists and turns of tax season during her career, which includes stops at Boston-based Wolf & Co. and major accounting firm KPMG. Like most years, 2010 has its share of fresh changes to the tax code, and Bacon is working to help translate the jargon for banks.
Jana Bacon
Title: Partner, Wolf & Co.
Age: 53
Experience: 31 years
One of the new rules for 2010 is that companies have to inform the IRS of their “uncertain tax positions.” What does that mean?
What’s happening is, you’re giving the IRS a roadmap. They’re requiring that you give them a form that gives them a roadmap to the different issues you might have on your tax return.
A lot of the tax rules are gray, they’re not black and white, and there’s a lot of interpretation that goes on … So the IRS just really wants to know what are those areas that you’ve determined are so uncertain that you’ve actually recorded a reserve on your financial statements.
This applies to all companies, though, not just banks?
It applies to all corporations that file a tax return that have an audited financial statement [with] assets over $100 million.
Any examples of what might be a bank’s “uncertain tax position”?
One example might be the IRS position with respect to interest on loans that have been taken off accrual basis for book purposes. … A bank has to stop accruing interest on a loan if it’s more than 90 days past due. And the IRS position is that you have to continue to accrue that income for tax purposes and pay taxes on it, even though it hasn’t come in and you stopped accruing for financial statement purposes.
There are all sorts of hoops you have to go through in order to stop accruing for tax purposes. A bank may take the position for certain loans that they’ve stopped accruing, but the IRS may take the position that they don’t meet all the criteria that allows them to do that.
How many banks will have to deal with the uncertain position issue?
That particular one, at least from our experience – and we do work with an awful lot of banks – is that very few of our clients have reportable tax positions for purposes of this new form. We do have a handful, but they tend to be a little big larger, more complex banks.
And the rule has changed a few times since it came out?
Yes. [The IRS’] original notice wanted much more information than was ultimately in the final rule. They wanted to know the maximum dollar amount of these potential adjustments, and they wanted to know basically why you felt the position was uncertain. … They ultimately issued revised announcements that indicated that you don’t have to give a dollar amount, you just have to say what the position is, and you have to rank it by dollar amount. So if you have three positions … you rank them one, two, three by dollar amount but you don’t have to give a dollar amount or the rationale as to why you’ve taken that position.
What are some of the new deductions or benefits this year?
You know how we each pay – unless we’re working for the government – FICA and Medicare tax? The employer does not have to pay FICA tax for those employees that meet [certain] criteria, [if they were hired after being unemployed for more than 60 days].
So it’s an employment incentive.
That’s right. .. it’s also credit. If you keep those people employed with your company for at least 52 weeks, you get a tax credit of up to $1,000 per employee.
And there’s also a deduction for building improvements?
It’s really any fixed asset addition that’s personal property-related – not permanent additions to the building. … For [qualified] additions, you get to expense them, you don’t have to depreciate them. And this year they’ve increased the amount of that limit to $500,000. So if you have such additions of less than $2 million in the year 2010 and 2011 … you can deduct the first $500,000. And if you have more than $500,000 in such additions, you deduct 50 percent right off the top … and then you can also depreciate the remaining 50 percent utilizing the normal depreciation methods for tax purposes.
So that’s to spur more buying?
Right. It’s to support those companies that need equipment, it helps them to afford to buy it. If they can get the tax deduction immediately, then that gives them money in their pocket from the perspective of the tax dedication so they’re not putting a bunch of working capital into place without a current benefit.
Top Five Factors That Convince The IRS That A Debt Is Worthless:
- If the borrower has undergone bankruptcy or insolvency.
- The borrower lacks assets.
- Continually refuses to respond to demand for payment.
- The borrower dies.
- The business is abandoned.
