NEW YORK, Nov. 23 /PRNewswire/ -- As companies continue to focus on controlling costs and preserving cash in the continuing difficult economy, KPMG LLP, the audit, tax and advisory firm, presents some federal tax considerations for businesses of all sizes that may help conserve or generate much-needed cash flow.
"As companies confront a very challenging year, their tax positions could be affected by decisions they make in order to weather the economic situation," said Steven Lainoff, principal-in-charge of KPMG LLP's Washington National Tax practice. "In addition, Washington extended some lifelines this year via new tax provisions to help companies, and these tax opportunities should certainly be explored before year-end.
"A review of tax regulations and positions is always advisable for companies at this time of year," Lainoff added. "It is especially important in the current economic environment, where every dollar can count."
KPMG recommends that companies should check with their tax advisors to determine if the following 2009 tax considerations, among others, may apply as they prepare for the upcoming tax-filing season and as the cash planning process for the new year begins.
1) EXPLORE OPPORTUNITIES FOR TAX REFUNDS: Depending on a company's anticipated tax liability for 2009, it may be able to obtain a refund of all or part of its estimated federal taxes for 2009 prior to filing its 2009 return.
In addition, if a company's deductions exceed its income in 2008 or 2009, the possibility of
securing a refund of taxes paid in prior years should be explored, as a tax provision called the net-operating loss carryback may apply. Recently enacted legislation allows almost all taxpayers to carry a loss from either 2008 or 2009 (but not both) as far back as five years earlier. This can provide a quick infusion of cash for qualifying companies that had taxable income in previous years.
2) CHECK THE PERFORMANCE OF THE COMPANY'S INVESTMENT PORTFOLIO: Companies with stock or security investments that become worthless in 2009 should investigate the option of claiming a deduction.
The worthless stock (or security) deduction must be claimed in the year in which the investment becomes wholly worthless; if certain requirements are satisfied, this may result in an "ordinary" rather than capital loss. Because an ordinary loss (as contrasted with a capital loss) can offset ordinary income, it is generally more advantageous for companies in the current economic environment to have ordinary rather than capital losses.
In addition, companies may also be able to claim wholly- or partially-worthless deductions on certain debt instruments. Companies may have to take certain actions before the end of their tax year (for example, book charge-off for partially worthless debt) in order to potentially claim such deductions.
3) CONSIDER DEFERRING INCOME FROM A CORPORATE DEBT REPURCHASE: Companies that may have repurchased, exchanged or modified their own outstanding debt in 2009 (or intend to do so in 2010), should look into the possibility of deferring any income resulting from the transaction.
This provision from the American Recovery and Reinvestment Act of 2009 allows qualifying companies to defer recognition for a limited period of time on all or a portion of their "cancellation-of-indebtedness" (COD) income when they reacquire an applicable debt instrument.
4) REVIEW IMPACTS OF ECONOMY ON TRANSFER PRICING AND OTHER COMPLIANCE MATTERS: For example, companies conducting international trade or manufacturing should consider undertaking a thorough review of transfer pricing and trade and custom activities before the end of the year. The substantial changes in economic conditions, business structures, and transfer pricing regulations have the potential to leave companies exposed to audits by regulators in these areas and to create challenges for future development. Companies should review results of intercompany transactions in relation to tax regulations and consult with their tax and customs advisors regarding potential needs for adjustments and / or additional documentation.
5) ENSURE COMPLIANCE WITH THE MANY STATE AND LOCAL TAX CHANGES ENACTED IN RESPONSE TO THE ONGOING ECONOMIC CRISIS: Some of these items include expanded nexus standards, more comprehensive provisions restricting deductions for expenses paid to affiliates, rate increases or the adoption of surtaxes, and limitations placed on the use of certain business credits and net operating losses. In addition, taxpayers will need to pay careful attention to the states' reactions to federal stimulus legislation, specifically, whether states have decoupled from federal law changes such as bonus depreciation and net-operating loss carryback provisions.
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.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International. KPMG International's member firms have 137,000 professionals, including more than 7,600 partners, in 144 countries.
Contact: Ichiro Kawasaki / Robert Nihen
KPMG LLP
201-307-8640 / 201-307-8296
ikawasaki@kpmg.com / rnihen@kpmg.com
SOURCE KPMG LLP
