Friday, June 21, 2013

Tennessee Department of Revenue Issues Last Call for Intangible Holding Company Voluntary Disclosure

The Tennessee Department of Revenue issued Notice 13-06 in June notifying taxpayers that its acceptance of voluntary disclosure of intangible expense deductions at a preferred settlement rate will be ending later this year. The Department states in the notice that, beginning September 30, 2013, it will no longer recommend settlements of cases involving intangible expenses paid to affiliates - the infamous "intangible holding company" structure.

The Department's settlment initiative began back in late 2011, and since that time, the law has changed, now requiring taxpayers for the 2012 tax period and after to file an application to claim deductions for intangible expenses paid to affiliates. The settlement generally only requires a taxpayer to pay only 25% of the proposed assessment from the disallowance of such deductions.

The timing of this is not surprising as the Department is starting to see the first of the applications under the new law being filed, with many that will be filed in August, as the pending extended deadline for filing for the 2012 tax period is in October (the application must be filed 60 days before the due date of the return).

Taxpayers still on the fence on this issue should seriously consider the voluntary disclosure, especially if they plan to continue to claim the deduction for future periods. The application process will put a taxpayer on the radar with the Deparment, and to the extent that the state denies the application, they would have a right to pursue the open years through an audit/assessment if no VDA has been submitted.

We knew this day would come, so consider this the last call ...

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