SUCCESSFULLY NEGOTIATING A TAX SETTLEMENT – EVEN IN THIS ECONOMY

1. SUCCESSFULLY NEGOTIATING A TAX SETTLEMENT –EVEN IN THIS ECONOMY California Tax Policy Conference San Diego, California November 2, 2012 Jeffrey M. Vesely Pillsbury Winthrop Shaw Pittman LLP 703905117

2. Cutting a Deal • Are you really willing to settle? • Are you prepared to go to the mat in litigation? • Are you prepared to make it look like you are willing to go to the mat? • What are you willing to give up? • Do you have flexibility regarding terms of a settlement?

3. Cutting a Deal (Cont.) • Why settle? • Evaluate pros and cons • Evaluate the relative merits of the issues • Be realistic • Don’t let it get personal • Assess the strengths and weaknesses of the facts and legal arguments • Are the equities on your side • Use of resources and expenses related to continuing the controversy • Effect on future years • Effect on other issues • Are the issues continuing?

4. Cutting a Deal (Cont.) • When to settle? • At audit? • At protest? • At appeal? • In court?

5. Cutting a Deal (Cont.) • When to settle? • Before litigation costs start mounting • After discovery is complete • After a victory • Just prior to end of state’s fiscal year • On the courthouse steps

6. Cutting a Deal (Cont.) • Alternatives to payment of large refunds • Refund payment over time • Combine refund with abatement of taxes for other years • Consider NOL and credit carryovers • Consider future years’ tax exposures

7. Cutting a Deal (Cont.) • Alternatives to payment of large refunds (cont.) • Apply refund to other taxes • Hold funds as tax deposit • Apply refund credits to future years • Closing agreement as to certain issues for future years

8. Audit • Should you consider entering into a pre-filing agreement with respect to certain issues? • Should you consider entering into a closing agreement with respect to specific issues? • Evaluate pros and cons

9. Administrative Review Process • Should you consider entering into a closing agreement during the administrative review process outside the Settlement Bureau? • Evaluate pros and cons

10. Settlement Bureau • Advantages to the Settlement Bureau • Cases generally move more quickly through the system • Nine Month Rule (FTB) • May minimize extensive information requests • Some issues are settled administratively which in the past had to be litigated • Allows for splitting of issues • Less expensive than judicial litigation

11. Settlement Bureau • Disadvantages to the Settlement Bureau • Process is somewhat cumbersome due to the various levels of approval • Does not apply to cases at audit • FTB/SBE policies on settlements and litigating hazards • Only dealing with FTB/SBE Staff • In Court, the Attorney General’s Office is directly involved • Public disclosure of settlement results

12. Settlement Bureau • Should You Consider Going to Settlement? Why? When? • Timing • Early vs. late in Protest/Petition process • Should you wait for the hearing officer to issue his/her decision? • Do you have issues you do not want to compromise? • Do you want to minimize inquiries by the hearing officer?

13. Settlement Bureau • Should You Consider Going to Settlement? Why? When? (cont.) • Do you have evidentiary problems? • Do you have difficult issues? • Will FTB/SBE settle refund claims? • Should you narrow the issues or keep as many issues on the table as possible?

14. Settlement Bureau • Should You Consider Going to Settlement? Why? When? (cont.) • Should you keep as much tax in dispute as possible? • Should you settle specific issues or entire tax years? • What about Federal RARs?

15. Court • Formal Procedures • Early Settlement Program • Mandatory Settlement Conference • Alternative Dispute Resolution • Arbitration • Mediation

16. Court • Informal Procedures • Involvement of Attorney General’s Office • Effect of Third Party Conferees • Use of Closing Agreements

17. Questions

18. Jeffrey M. Vesely Pillsbury Winthrop Shaw Pittman LLP San Francisco jeffrey.vesely@pillsburylaw.com (415) 983-1075