Determine Internal Team and External CPA. Successful results are best achieved by a team. This team should consist of the right members of a company’s internal team, as well as the company’s regular legal counsel, outside CPA, and a state and local tax and incentives attorney. Start With the Statute. Tax and incentive results are always dependent on the actual, very precise (or imprecise) words of the actual statute, which the Legislature chose to include or exclude. Results are not dependent upon the Department of Revenue’s opinion of the statute or the department’s wish as to what the statute said or didn’t say. Determine Other Relevant Law. Determine what regulations and case law exist on point and how these impact the result or are distinguishable. View the Department’s Rulings Properly. Generally, the department’s revenue rulings are not binding on taxpayers. They don’t constitute the law. They constitute the department’s opinion (on which taxpayers can generally rely). Determine the Critical Facts. Unsuccessful cases often get bogged down in facts that are not important or miss facts that are important. Determine the facts needed to win and the facts that actually exist. Follow the Rules of Statutory Construction. When disputing the department’s interpretation of a statute, knowing and applying the accepted rules of statutory construction is critical. A faulty statute interpretation usually violates one of these rules. Understand the Department’s Rationale. To effectively rebut the interpretation of the Department of Revenue, fully understand the rationale and analysis that led the department to that interpretation. Respect the History. Legislative history (such as from the Nebraska Legislature’s process and debate) can often be a good source of knowledge regarding the right way to interpret an unclear statute. However, like all tools, legislative history has limitations, too. This history must be used properly. Protect the Attorney Client Privilege. Take care to ensure that the attorney-client privilege, when applicable, is not lost through any of the ways this can be lost. Statute of Limitations Review And Extension Strategy. Determine when to keep the statute of limitations open or let it expire. Respect Company Time. Respect must be given to the time of the company personnel who are assisting in the defense. Keep Evidence Admissible. Facts can often be proven multiple ways. Care needs to be taken to ensure that evidence documenting a fact will be available and admissible at each stage, especially if a hearing is needed. Retain the Records You Need. Companies need to make sure they are retaining the records needed to prove a tax result. This can be an issue when assessments are issued several years after the tax year—and a hearing, when needed, may not take place until a number of years after the tax year. Legal Analysis. Be precise, thorough, and truthful in how the legal analysis is developed, written, and presented. Proper Attitude. Determine from the beginning the proper attitude towards the position in the case and reflect this in all of the discussions and analysis. Professionalism. Be professional and respectful in all discussions with everyone involved in the case. Convincing Testimony. Care should be taken to ensure the right people are available to testify—and that any witnesses can provide clear and convincing testimony. Whenever possible, someone with firsthand knowledge should be available. Nontax Principles. Various legal principles that exist in tax and nontax areas of the law can often be applied and should always be considered. Presumptions. Know what presumptions and burdens of proof apply. Don’t Forget the Experts. Expert testimony may be needed to prove certain key facts. Identify where experts may be needed and secure the right experts in that case. Play the Devil’s Advocate. Someone on the tax defense team should always play the part of the contrarian—no matter how solid or weak your issue or case may seem. This helps uncover blind spots and helps ensure both the strengths and weaknesses of the issue or case are properly vetted and considered. Be Visual. Realize that not everyone perceives in the same way. Always determine and prepare the best one-page summary that visually demonstrates the case. A one-page visual is important at each stage. Respect Cost/Benefit. Always estimate the cost (in-house and outside) to achieve a win or favorable settlement—at each stage of the protest. Comparing this to the amount at issue in the protest will allow for informed judgment about whether and how to advance or settle a position. Prevent Repeats. Look at what steps are needed to avoid a repeat of the same issue in future years. Begin With the End in Mind. Know where you want to end up before beginning. Other Unique Considerations. Determine what may be unique to the particular case and do what’s needed to address it. This protocol is used in state tax and incentive audits and protests/appeals. STATE TAX & INCENTIVE DEFENSE PROTOCOL BY NICK NIEMANN & MATT OTTEMANN, MCGRATH NORTH LAW FIRM 24 Nebraska CPA
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