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Basel III Overview of U.S. Developments
● Basel Committee on Banking issues proposals on the quantity and quality of banks’ regulatory capital (December 2010)
● Fed, OCC, and FDIC issue notices of proposed rulemaking (August 30, 2012)
● Fed issues instructions to compute regulatory capital under the Basel III proposals for Comprehensive Capital Analysis and Review (CCAR) and quarterly capital assessments (2012)
● Final rule approved (July 2013)
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DTAs recognized as “good” assets for regulatory capital− DTAs are allowed to the extent they can be netted against DTLs− Net DTAs are allowed if they can be carried back against taxes previously
paid− Remaining net DTAs are allowed up to lesser of
1. projected tax for 12 months post reporting date, or2. 10% of a bank’s Tier 1 capital.
Accumulated other comprehensive income (AOCI) items are reversed− Determined net of associated DTAs/DTLs, with option to also include or
exclude from limitation calculation.
Current Rules ‐ Background
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Basel III ‐ Deferred Tax Summary
DTAs only netted against DTLs in the same tax jurisdiction and of the same character
DTLs are allocated pro‐rata against all DTAs− NOLs− Credit carryforwards− DTAs from timing differences
Net operating loss (NOL) or credit carry forward DTAs are disallowed (net of pro‐rata allocated DTLs)
Net DTAs arising from timing differences allowed if they can be:− Used currently− Carried back against tax capacity on a jurisdictional basis− Do not exceed caps in the Threshold Deductions calculations
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Basel III – Threshold Deductions Three items are treated as good assets to the extent:
− Individually less than 10% of adjusted CET1− Collectively less than 15% of CET1 DTAs (after other adjustments discussed on prior slide) Mortgage Servicing Assets (MSA) Significant Investments in Unconsolidated FI common stock
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Basel III – Transition Rules Effective dates of Final Rule
− 1/1/14 for AA Banks− 1/1/15 for Non‐AA Banks
Phase‐in of adjustments− Generally phased in over a five‐year period.− All institutions (AA and Non‐AA Banks) use same transition percentages in 2015
and following.
2014 2015 2016 2017 2018
CET1 Deduction 20% 40% 60% 80% 100%
Carryforward DTA – Tier 1 80% 60% 40% 20% 0%
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Basel III ‐ State/Foreign Taxes
Banking organizations must analyze DTAs and DTLs on a jurisdiction‐by‐jurisdiction basis.
Applies in analyzing the ability to carry back state and foreign DTAs Utilize tax laws of the relevant state and local jurisdictions in calculating
current and deferred taxes Consider character of DTAs and DTLs under relevant federal and state tax
laws in determining the ability to offset DTAs and DTLs− For example, capital loss DTAs could only be offset against capital gain
DTAs
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Basel III – Carryback
Differences between the Preamble “clarification” and the Final Rule text retains some uncertainty for carryback treatment− Allowed DTAs are either: DTAs that could be realized by carryback net of DTLs DTAs that could be realized by carryback gross before allocation of DTLs
− Guidance likely via individual regulatory review − Netting prior to carryback application is more conservative
Final Rule is also silent on whether DTAs and DTLs are assumed to reverse at the report date− They reverse under current rules− No change to this treatment indicated
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Basel III – Netting Deferred Taxes & Other Regulatory Adjustments
Options for netting DTAs and DTLs against various regulatory adjustments:
− Fair value measurements or similar adjustments− Goodwill or other intangible assets− MSAs and significant investments in unconsolidated subsidiaries
Availability of netting varies depending on the type of regulatory adjustment Netting election is irrevocable without prior approval of regulator Other netting option:
− DTLs embedded in leveraged leases in purchase accounting
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Foreign Account Tax Compliance Act (FATCA)The Basics: New IRC chapter added by the HIRE Act of 2010 Final regulations published January 17, 2013 Revised FATCA timelines – Notice 2013‐43 FATCA Registration Portal opened August 19, 2013 Withholding begins July 1, 2014 on US source FDAP* income
(January 1, 2017 for gross proceeds withholding) Reporting requirements of non‐US entities with US account
holders identified in 2014*Fixed, Determinable, Annual, Periodic
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Foreign Account Tax Compliance Act (FATCA)The Impact: FFIs* to identify and report US persons that hold assets offshore Certain NFFEs** required to identify their substantial US owners US withholding agents to document all relationships with foreign
entities Failure to enter into an agreement or provide required
documentation will result in a 30% withholding tax on certain payments made to such customers and counter‐parties
Certain exemptions to withholding*Foreign Financial Institutions **Non‐Financial Foreign Entities
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Foreign Account Tax Compliance Act (FATCA)The Application: Obtain valid Forms W‐8 or W‐9 from payee to determine FATCA
status Classify accounts under FATCA classifications (i.e. non‐participating
FFIs, participating FFIs, deemed compliance FFIs, active NFEs) Perform due diligence on and classify foreign entity accounts, new
individual accounts and preexisting individual accounts Reporting on new Form 8966 (FATCA Report) due by March 31 of
the following year. Foreign branches or Offshore subsidiaries?
Copyright © 2013 Deloitte Development LLC. All rights reserved.
About this presentation
This presentation contains general information only and the respective speakers and their firms are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation.
Copyright © 2013 Deloitte Development LLC. All rights reserved.
AM2
Slide 14
AM2 Added this slide to go at the end of the overall presentationMersinger, Amy, 9/9/2013
Shedding Tiers: New IPGs and IPNs LB&I has abandoned the Tiered Issue Process in favor of a new knowledge management network
involving Issue Practice Groups (“IPGs”) and International Practice Networks (“IPNs”)
IPGs and IPNs designed to provide Examination teams the technical advice needed to manage cases efficiently, consistently, and with a high degree of technical proficiency
Intended to foster collaboration and sharing of knowledge and expertise across LB&I and Chief Counsel
Specifically, the new approach is meant to provide Examiners clear and timely guidance; promote collaboration; increase accountability and transparency in resolution of issues; and enable robust lines of communication with taxpayers
Examining agents are encouraged to contact IPGs and IPNs when they encounter unfamiliar or technically complex issues
IRS Examination Update
Improved IDR Process LB&I issued a directive on June 18, 2013 intended to improve the IDR process
Effective for all IDRs issued after June 30, 2013, the directive requires that “IDRs must be issue focused, they must be discussed with the taxpayer, and the taxpayer and the agent need to discuss the appropriate deadline for the request.”
The goal of the new process is a meaningful discussion between Exam and the taxpayer, before the IDR is issued, about what information really is needed
LB&I has trained its agents on the new process and intends to make the training materials publicly available in order to make the new process as transparent as possible
The directive contains a reminder that summonses are always possible but should not be required if the process is followed and working properly
IRS Examination Update
Appeals Judicial Approach and Culture (“AJAC”)
On July 18, 2013, Appeals issued guidance for Appeals employees on implementing AJAC, effective for all Appeals actions after such date
Intended to return Appeals to a quasi‐judicial approach to handling cases, with the goal of enhancing perceptions of a fair, impartial, and independent Appeals function
Appeals will not raise new issues or reopen issues where the taxpayer and Exam are in agreement An alternative argument is not a new issue, but Appeals’ factual development of the alternative
position is limited to the case file provided by Exam
If Exam forwards a case with insufficient factual development, Appeals will not return the case to Exam and will attempt to settle the case on factual hazards; however, if the taxpayer submits new evidence not previously considered by Exam, Appeals may return the case to Exam
Taxpayers continue to be free to raise new issues, although Appeals will likely return the case to Exam if the new issue involves facts not previously considered by Exam
IRS Appeals Update
Update on Tax Credits – Fallout from Historic Boardwalk
Historic Boardwalk Hall, LLC v. Comm’r – August 2012 Appeals court rejects PB as partner in rehab credit structure
FAA 20124002F – Issued October 2012 Rejects rehab credit partnership structure
Subsequent IRS/Treasury Public Comments Confirmed the government is not trying to destroy the LIHTC/NMTC
markets, but refused to limit the application of HBH to the rehab creditPending Revenue Procedure Establish safe harbor for rehab credits
Part of the 2013‐2014 priority guidance plan
Impact on other credits?
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Other DevelopmentsVarious LIHTC reform proposals continue to be debated. Benefit‐based proposals Qualification‐based proposals
Accounting proposals EITF proposed changes to EITF 94‐1
NMTC proposals Permanent extension Creditable against AMT
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Tangible Personal Property RegulationsThe Basics: Impacts all taxpayers that acquire, produce, or improve tangible
property – T.D. 9564 19 different types of method changes to consider – Rev. Proc.
2012‐19 and 2012‐20 Temporary and proposed regulations released – December 23,
2011 and amended December 14, 2012 Final and new proposed regulations issued September 13, 2013 Applies to taxable years beginning on or after January 1, 2014 Early adoption permitted beginning on or after January 1, 2012
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Tangible Personal Property RegulationsThe Framework: Materials and Supplies – Treas. Reg. §1.162‐3 Cost to acquire or produce tangible property – Treas. Reg.
§§1.263(a)‐1 and ‐2 Costs to improve tangible property – Treas. Reg. §1.263(a)‐3 General asset accounts/dispositions – Prop. Reg. §§1.168(i)‐1 and ‐8
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Tangible Personal Property RegulationsMaterial and Supplies ‐ Treas. Reg. §1.162‐3 : Tangible property used or consumed in the taxpayer’s operations
that is not inventory and is: − A component acquired to maintain, repair, or improve a unit of tangible
property− Fuel, lubricants, water or similar items that are reasonably expected to be
consumed in 12‐months or less− Unit of property with an economic useful life of 12‐months or less− Unit of property with an acquisition or production cost less than $200 − Property identified in future published guidance
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Tangible Personal Property RegulationsDe Minimis Rule: Written capitalization policy required for –
− Property costing less than a specified dollar amount, or− Property with a useful life of 12‐months or less
Expense in AFS* according to written policy Amount paid for the property does not exceed $5,000 per invoice
(or per item, if substantiated on the invoice). Amount reduced to $500 for taxpayers without AFS.*Applicable Financial Statement
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Tangible Personal Property RegulationsCost to acquire or produce tangible property – Treas. Reg. §§1.263(a)‐1 and ‐2: Capitalize amounts to:
− Acquire or produce a unit of real or personal property− Defend or protect title to a unit of real or personal property, or− Facilitate the acquisition or production of real or personal property
Does not apply to :− Amounts subject to de minimis rule− Amounts treated as material and supplies under Treas. Reg. §1.162‐3
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Tangible Personal Property RegulationsCosts to improve tangible property – Treas. Reg. §1.263(a)‐3: Determine the unit of property Apply the improvement standards
− Betterment, Restoration, or Adaptation
Consider the routine maintenance safe harbor Consider capitalization election
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Tangible Personal Property RegulationsRoutine Maintenance Safe Harbor: Amount paid is deemed to not improve the unit of property if it is
for the recurring activities that a taxpayer expects to perform as a result of the taxpayer’s use of the unit of property to keep it in its ordinarily efficient operating condition
Routine maintenance that taxpayer reasonably expects (at the time place in service) to perform more than once during the class life of the unit f property
Only applies to restoration to rebuild like‐new condition or replacing a major component or substantial structural part
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Tangible Personal Property RegulationsCapitalization Election: Taxpayers may elect to capitalize amounts paid during the taxable year
for repair and maintenance of tangible property− Costs must be incurred in trade or business− Costs must be capitalized on taxpayer’s books and records
Applies to all amounts paid for repairs and maintenance that are capitalized on the taxpayers books and records
Amounts expensed on books and records subject to otherwise applicable Code and regulation provisions and must be analyzed accordingly
Capitalized amounts are depreciated beginning when placed in service Annual election is irrevocable
− Made by attaching election statement to timely filed (including extensions) original federal tax return for the taxable year of election
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Tangible Personal Property RegulationsGeneral asset accounts (GAA)/dispositions –Prop. Reg. §§1.168(i)‐1 and ‐8: Elective Assets may be grouped into a single GAA if:
− Same depreciation method− Same recovery period− Placed in service in same taxable year
A single asset can be placed into a GAA If GAA elected, no loss on disposition recognized until all assets in
GAA disposed of Special rules for partial dispositions of assets included in a GAA
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Tangible Personal Property RegulationsGeneral asset accounts (GAA)/dispositions –Prop. Reg. §§1.168(i)‐1 and ‐8 (Continued…): Dispositions include:
− Sale or exchange, retirement, physical abandonment, destruction (including casualty), transfer to supplies, scrap or similar account, involuntary conversion, disposition of a portion of an asset under certain conditions
Partial disposition election− Recognize gain or loss on the disposition− Made in taxable year the disposition occurs
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Tangible Personal Property RegulationsMethod Change Guidance: File Form 3115 for automatic consent method changes
− Due by extended due date of return for the tax year of change
Common method changes:− Change to deduct repairs/maintenance costs− Change to capitalize or depreciate improvements− Change to apply de minimis rule− Change to dispositions of buildings and structural components− Change to make a general asset account election for MACRS* property
*Modified Accelerated Cost Recovery System
Copyright © 2013 Deloitte Development LLC. All rights reserved.
About this presentation
This presentation contains general information only and the respective speakers and their firms are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation.
Copyright © 2013 Deloitte Development LLC. All rights reserved.
OREO GLAM (AM 2013-001)
The IRS has recently insisted that costs associated with (unrented) OREO need to be capitalized for tax and tracked on a per‐property basis. See, e.g., FAA 2012‐3201F.
AM 2013‐001 reverses this position by concluding that OREO acquired by the loan‐originating bank through foreclosure proceedings or by deed‐in‐lieu of foreclosure is not property acquired for resale within the meaning of section 263A(b)(2).
What are the options for banks that have historically capitalized? What about general capitalization rules under section 263(a)?
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Selling Costs The IRS is actively contesting the inclusion of selling costs in bad debt deductions on exam
− There is authority for inclusion, but it has yet to persuade the IRS across the board
The ABA requested guidance on impact of selling costs on bad debt deductions for banks that have made the conformity election Guidance forthcoming through Industry Issue Resolution program Interaction with Notice 2013‐35?
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Notice 2013-35: Request for Comments on Conclusive Presumption
IRS & Treasury are rethinking the special bad debt rules for banks− Reasons? Lack of chargeoff orders Reluctance to issue letters Expansion of loss asset classification rules to securities Change in accounting rules Other?
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Notice 2013-35: Request for Comments on Conclusive Presumption
The Notice sets out seven questions around these issues and asks for comments by October 8, 2013. The questions include:
1. Which corporations are regulated by a Federal or State entity that reviews and makes determinations about worthlessness of debt assets in a manner consistent with the tax standards for worthlessness under section 166, and which of these entities should be covered by revised conclusive presumption rules?
2. Should the Conclusive Presumption Regulations be modified to reflect the changes in bank regulatory standards and processes since adoption of the regulations, and if so, how?
3. Are the current bank regulatory standards incorporating generally accepted accounting principles (“GAAP”) sufficiently similar to the standard of worthlessness under section 166 that they may appropriately be used in formulating revised conclusive presumption rules?
4. Should § 1.166‐2(d)(1) and (3) be replaced with a single rule or should the regulations retain more than one conclusive presumption of worthlessness?
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Notice 2013-35: Request for Comments on Conclusive Presumption
5. What process should be required by any new conclusive presumption regulations to verify that the regulated entity applied appropriate regulatory standards in taking a charge‐off?
6. Are there limits that should be placed on the extent to which the timing of a deduction under section 166 may vary from the time when the regulatory standards mandate a charge‐off?
7. Are there impediments to the uniform application of a loss standard across different GAAP debt classifications?
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
SummarySummons enforcement action in which Wells Fargo claimed that TAWs the IRS summoned during its examination of Wells Fargo’s 2007 and 2008 federal income tax returns are privileged and therefore protected from disclosure to the IRSSummonses issued to both Wells Fargo and KPMGCourt ordered that Wells Fargo identify the issues contained in its and KPMG’s workpapers, but otherwise held that the legal analysis contained in the workpapers was protected from disclosure under the work product doctrine: “Wells Fargo has shown that the enforcement of the summonses would represent an abuse of the court’s enforcement powers in certain respects because much, but not all, of the material sought by the summonses is protected by the work product doctrine.”Court also held that certain categories of documents were protected by the attorney‐client privilege or were not relevant to the IRS’s examinationFirst TAW case under FIN48Case was not appealed and judgment became final on August 6, 2013
Tax Accrual Workpapers: Wells Fargo v. United States, Misc. No. 10‐57 (D. MN 6/4/13)
Summonses Were Not Issued for an Improper Purpose In order to enforce a summons, the IRS must satisfy four requirements set forth in Powell v. United
States: (1) its investigation is pursuing a legitimate purpose; (2) the inquiry may be “relevant” to that purpose; (3) the information sought is not already in the IRS’s possession; and (4) the administrative steps required by the Code have been met
According to IRS testimony, purpose of summonses was to verify the accuracy of the returns and therefore they were proper
Court gave little weight to the fact that the IRS had violated its own policy of restraint against requesting TAWs
The policy of restraint did not attempt to interpret “legitimate purpose” for purposes of issuing a summons, and therefore did not limit the IRS’s authority under Powell
Even if the IRS intended the policy to limit the circumstances in which it would request TAWs, the IRS in any event had a “somewhat inconsistent” posture on when it will request TAWs
Tax Accrual Workpapers: Wells Fargo v. United States, Misc. No. 10‐57 (D. MN 6/4/13)
Wells Fargo’s Identification of Uncertain Tax Positions not Protected Court applied the proper “because of” standard in the 8th Circuit; contrast with the “prepared for use
in litigation” standard of the 1st Circuit in Textron and the “primary motivating purpose” test of the 5th Circuit in El Paso
Identification of UTPs and underlying factual information related thereto not protected as work product
Court found that information was compiled in the ordinary course of business before any serious tax challenge had been made
Wells Fargo argued that the identification itself was opinion work product, but the court held “mere identification of which tax positions a company should analyze under FIN 48 is too far removed from any litigation to be protected work product or considered created ‘because of’ litigation.”
Court’s holding, whether intentional or not, is largely consistent with the information the IRS requires to be included in Schedule UTP
Tax Accrual Workpapers: Wells Fargo v. United States, Misc. No. 10‐57 (D. MN 6/4/13)
Recognition and Measurement Analysis are Protected Although the workpapers themselves were not prepared in anticipation of litigation and were
instead prepared to comply with financial reporting obligations, using a content‐based rather than purpose‐based approach, Court held the “the recognition and measurement analysis in them reflects the legal analysis conducted by Wells Fargo’s attorneys in anticipation of litigation.”
Allowing the IRS access to these recognition and measurement analyses “would provide a window into the legal thinking of Wells Fargo’s attorneys on active litigation strategy, running counter to the purpose of the work product doctrine.”
Limited holding to Wells Fargo’s specific facts; noted Wells Fargo proved anticipation of litigation for each UTP: “Wells Fargo actively participated in litigation or IRS Appeals on many of the UTPs and, for others, such litigation appeared likely.”
No Waiver IRS did not show extraordinary circumstances necessary to overcome almost absolute protection of
opinion work product No waiver by providing workpapers to KPMG: not an adversary, a potential adversary, or conduit to
an adversary
Tax Accrual Workpapers: Wells Fargo v. United States, Misc. No. 10‐57 (D. MN 6/4/13)
Attorney‐Client Privilege Applied to Some Workpapers and Some Irrelevant 8 documents were held to be protected by the attorney‐client
privilege because a Wells Fargo attorney was the sender or recipient of the document, including 3 documents containing drafts of documents that were later provided to KPMG
State and local workpapers were determined to be irrelevant; an IRS witness largely admitted so
Wachovia (pre‐acquisition) workpapers were also held to be irrelevant
Tax Accrual Workpapers: Wells Fargo v. United States, Misc. No. 10‐57 (D. MN 6/4/13)