Federal Income Tax Planning for Financial Services Businesses

Transcription

1 Federal Income Tax Planning for Financial Services Businesses Exploring new directions in the world of tax 2018 Financial Services Tax Conference July 19, 2018 kpmg.com

2 Notices The following information is not intended to be written advice concerning one or more Federal tax matters subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. 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. 2

3 Agenda 01 Federal Rate Differential 02 IT Function 03 Hot Topics & Future Considerations

4 Today s presenters Steve Borman Partner, Tax KPMG LLP T: E: sborman@kpmg.com Carol Conjura Partner, Tax KPMG LLP T: E: cconjura@kpmg.com Peter Baltmanis Principal, Tax KPMG LLP T: E: pbaltmanis@kpmg.com Todd Mazzeo Managing Director, Tax KPMG LLP T: E: tmazzeo@kpmg.com Christina Hwang Vice President, Head of Tax Strategy & Reporting Guardian Life Insurance Company T: E: christina_hwang@glic.com 4

5 Federal rate differential

6 Federal rate differential One time benefit from shifting recognition of items of income and expense between 35% and 21% tax rate. Opportunities exist for 1) automatic changes, 2) permanent items, 3) elective items, 4) improving regulatory capital, 5) non-automatic changes, certain transactions / payments for fiscal year taxpayers ending after 7/31/2018, and 6) unfavorable method changes locking in audit protection beginning in the first year with the 21% tax rate. Also, multi-nationals can shift items of income and expense between BEAT and GILTI tax years and consider Notice for multi-nationals with section 965 liability 6

7 Common FS industry opportunities Fixed Assets Depreciation - Cost segregation - Qualified leasehold improvements - Bonus depreciation Repairs and maintenance Dispositions Acquisition costs Deductions Accrued bonus, severance, and/or vacation Allowance for bad debts (reserve method vs. specific identification vs. conformity method) Capitalized loan fees expenses / capitalized intangibles Developed software Deductions (continued) Real property, personal property, state income and franchise taxes Rewards/loyalty programs and other rebates Payroll taxes (recurring item exception) Permanent items (M&E, lobbying, Sec. 199, fines/penalties) Pension contributions Prepaid expenses Self-insured employee medical expenses (IBNR) State taxes (recurring item exception) Transaction costs Revenue Credit card annual fees Deferred revenue/advance payments OID 7

8 IT function

9 IT function Financial services companies invest heavily in Information Technology ( IT ) and software to differentiate their customer experience and improve efficiency. Numerous federal income tax opportunities exist around the IT function including the following 1. Research tax credits (and applying cognitive technologies) 2. Immediate expensing under Sec. 174 and Rev. Proc Lower effective tax rate on qualified activities under Sec. 41, 199 and FDII (Sec. 250) 9

10 Why revisit research tax credits? Recent Taxpayer Favorable Developments Related to the Research Credit that have Direct Impacts to Taxpayers: Final regulations for research activities involving the development of computer software The Treasury Department and IRS issued final regulations concerning the application of the research tax credit for computer software developed for the taxpayer s internal use. These regulations provide significant taxpayer favorable guidance regarding the qualification of software development projects and activities. Elimination of corporate Alternative Minimum Tax ( AMT ) Companies that previously only paid AMT were not eligible to utilize available R&D Tax Credits. The elimination of corporate AMT enables those taxpayers to pay regular tax that can be offset by R&D credits. New maximum Corporate tax rate of 21% starting in 2018 The reduced rate from 35% to 21% now makes the R&D Tax Credit worth even more! R&D Tax Credits can help reduce your BEAT liability 100% of allowable R&D credits can be used to reduce the amount of BEAT imposed through 2025 Increased taxpayer retention of research tax credit benefits The Pre-filing agreement (PFA) program, early IRS engagement, and other strategies have provided taxpayers with improved retention and efficient resolution of research tax credit benefits. 10

11 Applying data & analytics for research tax credits Large data sets and complex organizations presents a challenge for taxpayers KPMG has built the first automated platform that focuses on research tax credits and the qualitative review of project documentation and contractual agreements using IBM Watson s cognitive analysis The combination of KPMG s dedicated research credit services team and the powerful cognitive computing technology of Watson enables us to analyze thousands of documents with speed and accuracy to capture R&D tax credits, while minimizing the time required by engineering resources Some of the Benefits of Applying AI to Tax Credits include: Increase ROI Improve financial return through audit-proof tax credits that can be reinvested for growth. Potentially discover new, eligible R&D activities. Increase efficiency Minimize disruption to your business with a less intrusive, less time consuming approach. Reduce risk Examine all documents, but focus only on the most relevant, valuable passages to qualify projects. Prove and sustain value Build a higher-quality R&D credit deliverable to increase credit amount retention under IRS audit. 11

12 Hot topics & future considerations

13 Hot topics & future considerations 1. Section 451(a) book conformity and realization exception 2. Bonus depreciation 3. Interest expense deductibility 4. Modified NOL deduction 5. Repeal of AMT and sequestration 6. Excess BEAT limitation planning 7. Section 162(f) fines and penalties 8. New automatic change procedure Rev. Proc supersedes Rev. Proc Notice Advance Payments 10. Capital loss carrybacks 13

14 Hot topics & future considerations 11. Protective section 199 claims 12. Claim of right benefit Section 1341 Examples: - Settlement of customer lawsuits - Subsequent adjustment to sale price of business - Other refunds/rebates relating to revenue (other than sale of inventory) 13. Capitalization and amortization of R&E 14. Identification of eligible FDII opportunities 15. Section 199A 16. Future regulation projects 17. Tax reform

15 Thank you

16 kpmg.com/socialmedia The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation 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 NDPPS The KPMG name and logo are registered trademarks or trademarks of KPMG International.