Flexibility in Tax Compliance.

AuthorLevin-Epstein, Michael
PositionBloomberg Tax and Accounting's Nick Frank and Adam Schrom

In tax compliance, a certain amount of rigidity is expected. But in tax technology, the buzzword today just may be flexibility. In this Tax Technology Corner, Tax Executive senior editor Michael Levin-Epstein interviewed two product leads at Bloomberg Tax and Accounting--Nick Frank and Adam Schrom--to find out why flexibility in this space is essential.

Michael Levin-Epstein: What are the risks for taxpayers, in terms of their provision process, of being too rigid in their approach?

Nick Frank: The provision process is the most scrutinized process in most corporate tax departments because it has visibility in the financial statements. The CFO and the CEO care about how it impacts earnings per share; they care about what that means to the actual income that the company is reporting. We want to make sure that, as tax professionals, we are managing those risks ahead of time and not being so reactive. The issue you're going to have is that for any business process, particularly as companies grow or change, the processes need to be able to adequately address the changes in the underlying business or in the environment you're in, whether that's changes in tax law or changes in the actual footprint of the business that require you to comply with laws in different states or different countries. Any of those things will require some kind of corresponding changes in your tax provision process. We want to be more proactive as changes occur, so we are adapting our models and processes so that we can do the work.

An additional issue that is super common in the provision space is the time crunch. Everything is done in a very short window of time, particularly for publicly traded companies. Most people doing provision work are doing all the work just weeks after year-end, and then it goes to the external financial statement auditors for review. So, not only are you doing it quickly, not only does it have a lot of scrutiny within the organization itself, but you also have the external auditors looking at it. So, there's a lot of pressure on this point. And if your process is very manual, and businesses change, the likelihood of getting something wrong--and having that wrong on a big stage with high scrutiny--goes up significantly. If your footprint changes and you didn't contemplate how you were going to integrate that into your process, or if the tax laws changed very late, like they did with the Tax Cuts and Jobs Act, you will have a difficult time incorporating some of those changes into your process and meeting the deadlines that are required for reporting for those types of companies.

Adam Schrom: To key in on several things that were said... first, around the time crunch: this is an activity that happens at specific times during the year, and you often don't have a lot of time to get it done. Tax is usually one of the last stakeholders in the financial close process to get this information, so they have the least time of anyone. And so, when you have a manual process, it's hard to get all that done. Oftentimes, the tax department is forced to...

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