Leveraging Technology and Resources in a New Age of Tax Jarvis L. Bomar Jefferson Wells

1. Leveraging Technology and Resources in a New Age of Tax Jarvis L. Bomar Jefferson Wells Nebraska/Missouri/Kansas Region May 22, 2007

2. Tax Function Responsibilities • BEFORE • Administration – • Budgeting – Internal/External expenditures • Forecasting – ETR focus • Reporting • Recruiting • People management & development • Compliance • Income tax • Sales & Use Tax • Property Tax • International reporting • Provision • Examinations • Planning

3. Tax Function Responsibilities • AFTER – All of the same things, PLUS: • FIN48 (Reporting of uncertain tax positions) • FAS123r (Equity based compensation) • E-filing • Schedule M-3 • SOX-404 documentation & remediation • Listed transactions disclosures

4. What’s Changed??

5. Forces driving corporate tax activities • Governance Forces • Sarbanes-Oxley Compliance • More work around documentation • Auditor Independence – more work that can’t be done by auditors • Reaction to corporate scandal and ethics violations • Backdating concerns (409A/162m/123r) – more work for tax department • Reserve manipulation – more work for tax department around FIN48 • Increased transparency • More work to provide more detail • FIN48 challenges to “transparency” – reduction of DTAs seems contrary – more work to track gross and net numbers • Financial statement accuracy • More work because estimates no longer acceptable

6. Forces driving corporate tax activities (continued) • Economic Forces • Do more with less • Increased IRS auditor aggressiveness due to government enforcement initiatives • Expensive services and inflexible business models • Increasing legal entities

7. Challenge • How do I get the speed and certainty with these Forces at work? This job is no longer possible… VP Tax at a Fortune 100 Company

8. Solutions • No magic bullet • Focus Areas • Tax department structuring trends • Tax department priorities • FIN48 efficiencies • FAS109 software • Spreadsheet controls • FAS123r software • Corporate Tax Platforms • Resource solutions

9. Tax department structuring • Segregation of functional responsibilities • Before: • Federal • State • Sales & Use • FAS109 • No tax knowledge outside of tax department • Growing Trend: • Tax Controller / Director of Tax Accounting outside of the “Tax Department” • FAS109 knowledge across the accounting/finance function • All accountants considering tax when discussing transactions and new journal entries

10. Tax department priorities • Shift in priorities • Before: • An actual CFO’s priority sheet for a Tax function • #1 – Reduce the effective rate • #2 – Save money through deferral of cash tax pmts • #3 - Perform compliance flawlessly • Is this still an acceptable strategy sheet??

11. Tax department priorities • Shift in priorities • Growing trend: • Tax accounting has jumped to top of list due to visibility and attention of outside auditors • Meanwhile: • Complexity increases (FAS123r, FIN48, ever-complicating tax laws) • And: • Resources declining • So therefore: • Less attention to tax planning • In some cases, NO tax planning is occurring. Why? • Resources • FIN48 complexity • FIN48 disclosure (even timing differences) • Negative media attention

12. FIN48 – A whole new era in Corporate Tax • Clearly an industry changing event • Not easy to lessen the workload, but it is important to know what will be acceptable to YOUR auditor. • You may still want to provide more detail than they are requiring, but you do NOT want to do rework at 3AM! We’ve seen it. • How is this really shaking out?? • Common perception that the Big-4 would make the rules as we went along. True. • Disclosures • Quarterly disclosures are nearly all in editorial form (no charts/tables)

13. FIN48 Shake-out • How is this really shaking out?? (continued) • What is really a change “related to FIN48?” • Commands from National Tax at the Big-4 to send any FIN48 increases to National Tax for review • Mixed with the local office’s desire to not call attention to small items • Heavy pressure to call increases “prior year errors” • Running through the P&L gets almost no pushback • Timing differences • More detailed computations (interest, etc.) • They are stuck on “reduction from 70% to 50%” (substantial authority  more likely than not) • Documentation • No strict guidelines • Offsetting • Be very aware of how things would really shake out (i.e. cash pmt / adjustments to attribute carryforwards such as NOL’s and Credit carryforwards)

14. FIN48 Shake-out continued • How is this really shaking out?? (continued) • Extremely inconsistent application between Big-4 firms: • Firm #1 – “There is no way your FIN48 liability can be the same as your FAS-5 liability. That’s not possible.” • Firm #2 – “We won’t let you report anything different than what was recorded under FAS5 until the audit is deemed complete.” • Firm #1 – “You don’t have enough issues. We would never accept this if we were the external.” • Firm #2 – “This temporary item you put up as an exposure – We really don’t think it is a risk.”

15. FIN48 Shake-out continued • Surprises!! • Firm #2 – “As a client of ours, you really weren’t supposed to be taking a “FAS-5” approach to reserves. Instead you should have been taking the “FAS-109” approach to tax reserves. • Therefore – it is a 2006 error

16. FIN48 Efficiency Strategies • The “one-outcome” approach (if any SINGLE OUTCOME has, on its own, a greater than 50% chance of being the ultimate outcome  That is the answer!). • Benefit • Time saver – Don’t have to come up with other outcomes, and don’t have to assess their likelihood. • Situations where this has been accepted by Big-4 • When it would specifically be proposed by the company in case of an audit, and is 60% likely to be accepted. • When it is based on audit experience in another jurisdiction. • It was our best guess under FAS-5, and mathmatically, it is exponentially more likely than any other individual outcome.

17. FIN48 Efficiency Strategies continued • Sourcing the GL review to other parties (accounting clerks, accounting managers, external providers) • Front-end review of transactions from different angle. Accounting personnel should always be saying • “How much tax benefit can be recognized for this transaction?” • Where should it be recorded? • What is impact on current accounts? • What is impact on deferred accounts? • What is impact on tax P&L accounts? • Maybe I should consult the tax department!

18. FIN48 Efficiency Strategies continued • Talk to other companies. Find out what is on their list. • Obviously sensitive, however it is “quasi-public” info • JW is beginning to accumulate nameless data regarding the TYPE of issues and ISSUES ENCOUNTERED with Big-4 • Example: • Federal R&D Credit disallowance • California R&D Credit disallowance • Capitalization of small equipment • Subpart F income • California cost of performance • Etc. • We will be using our internally developed FIN48 technology to our client’s advantage

19. Technology The TRUTH – there is no silver bullet • What efficiencies can I gain from implementing technology? • Automation of calculations • Ability to import financial information • Process management • Data Collection • Document retention • Data warehousing • Tax Planning capabilities

20. Technology What do I do first: • Understand the business need: • Inventory your current applications and activities • Determine the business benefits • Determine where technology can create efficiencies • Look at the options available in the market • Compute the cost • Evaluate the cost of doing nothing

21. Technology • What aspects do you need to consider when evaluating technology? • Functionality • Cost • Security • Technology • Vendor profile • Maintenance and Support • Implementation • Training

22. Technology Functionality • Identify all users and assess their needs FIRST! • Identify which needs are absolutely essential • Compare essential needs with software capabilities • Customizability – (specifically reporting) can the end user do it or does it require vendor support • Usability – How easy is the software to use? • Ease of importing/exporting data • Prioritize all these needs – what is really important and will result in the most efficiencies

23. Technology Cost and Purchasing Issues • Executive buy-in and support • Great variance in price versus functionality • May require business case development • Stability of Vendor • Bill rates for technical consulting and support – average is $150 – 250 per hour • Multi-year contract incentives – what is in it for you?

24. Technology Security • Compliance with companies security and SOX standards • Authentication – username/password • Security customization – by User, Group, Entity, etc. • Audit logs • Record Retention

25. Technology • Technology • Hosted vs. non-hosted – know the issues • Involve your IT department • Upgrades – frequency and SOX requirements with your IT department • Performance • Integration into existing infrastructure • System requirements – minimum vs. recommended vs. real

26. Technology Vendor profile • Vendor reputation and stability • Application reputation • Responsiveness • Feedback from other clients Maintenance and Support • Update frequency • How easily are updates applied? • Availability of support staff

27. Technology Implementation • Implementation support – vendor, outsource or internal • Internal time and effort commitments Training • Location of initial training – on or offsite? • Ongoing training availability • Quality of training and software manuals

28. Technology Options (continued) • FAS-109 software – most frequently used • TaxStream – integrates with other compliance packages, FIN 48 module and data collection module • CrossBorder – integrates with other compliance packages, FIN 48 module, recently acquired by Thompson • CorpTax – FAS 109 and compliance packages, FIN 48 module and data collection module • InSource – FAS 109 and compliance packages, FIN 48 module, work-flow management module and data collection module • VantageTax – Primarily compliance package – have a global provision product, recently partnered with TaxStream

29. Technology Options (continued) • FAS-109 software – other options • eTaxProvision – Tax Technologies, Inc. • GTO TaxCalc – Levyti Consulting (“Global Tax Office”) • Longview Tax Solutions – Canadian based • TaxSation – Compliance and provision tools (“Corporate Pro”) • EA Taxscore – Netherlands based international program • Liquid Engines – (GPM) FIN 48 and advanced international and state modeling capabilities, no FAS 109 calculation

30. Resource Solutions • Survey of room – How is everyone “getting it done?” • Combo of Big-4/mid-tier firms • How have professional fees been impacted?

31. Q & A Jarvis L. Bomar Director – Tax Operations Jefferson Wells Kansas City Phone: 816-627-4203 Mobile: 816-588-5172