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Sunday, October 1, 2017

Why should you go for a tax opinion/ruling?

Recently, I have had the experience of reviewing direct/indirect tax rulings for my employer. While the process is useful, I was left wondering that with so many caveats/disclaimers, why should we go to the whole pain of getting one? After all, for other subjects such as valuation, accounting etc, opinions are rarely sought. Why make an exception for tax and law? After some search, I found out the following reasons. The primary reason in the Indian context is statutory reasons(financial statement or tax penalty protection).

  1. Comfort opinion/Vet the transaction: Provides the taxpayer with comfort that a transaction the taxpayer is considering entering into will have the expected tax consequences. This involves steps like making sure all issues are properly thought out and documented, confronting any shortcuts or sloppy thinking, and due diligence via fact collection. From an internal standpoint, it is also useful as to assure proper implementation and continued compliance, and memorializes analysis for future reference
  2. Contractual condition opinion:  Other parties seek assurance/closing condition as receipt of the opinion that the transaction will have the tax consequences specified in the contract.
  3. Disclosure opinion: This opinion gives comfort regarding a person’s duty to disclose.
  4. Penalty protection opinion: This opinion is intended to permit clients to rely on to avoid possible civil penalties.Can deter IRS  from challenging or asserting penalties.
  5. Financial Statement Recognition: This opinion provides advice regarding the tax treatment of items for purposes of financial statements.  The “more likely than not” standard is required in order to recognize, for financial statement purposes, a tax benefit with respect to which there is some legal or factual uncertainty. This would be acceptable to the financial statement auditor. 
  6. Reporting opinion:  This opinion provides advice regarding the proper tax reporting of a completed transaction.



M Ahmed said...

Thanks for sharing the detailed article.

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