Workshop MM Alternative to Resolving Tax Disputes What Has Worked - - PDF document

28th Annual

Tuesday & Wednesday, January 29‐30, 2019

Hya Regency Columbus, Columbus, Ohio

Workshop MM

Alternative to Resolving Tax Disputes … What Has Worked in Other States

Wednesday, January 30, 2019 2:00 p.m. to 3:00 p.m.

Biographical Information

Amy Thomas Laub - Technical Director, Tax, Nationwide Insurance Company 1 W. Nationwide Blvd, Columbus, OH 43215 614-249-7070 thoma30@nationwide.com Amy Thomas Laub works for Nationwide Insurance Company, which is headquartered in Columbus, Ohio. As Tax Director, she is primarily responsible for state income and sales & use tax areas. Prior to joining Nationwide, she worked in the Tax departments for Tempur Sealy International, Inc., located in Lexington, Kentucky, and Federal Express, located in Memphis,

• Tennessee. Amy has experience with multiple areas of state taxation including compliance,

audits, planning, policy and incentives & credits. Amy currently serves as the Immediate Past Chair and Member of the Board of Directors for the Council on State Taxation (COST) after chairing COST until 2019 as only the third woman to chair COST over the past 49 years. She participates in numerous conferences and schools as a speaker and a facilitator. Amy is a licensed CPA and received her B.B.A. degree in accounting from the University of Cincinnati. Christine T. Mesirow, Section Chief, Taxation, Ohio Attorney General 30 E. Broad St.; 25th Floor, Columbus, OH 43215 614-995-3753 Fax: 866-459-6679 Christine.mesirow@ohioattorneygeneral.gov Christine has practiced in the area of state and local taxation for more than 25 years, in both the private and public sectors. She began her career in state & local tax as an assistant attorney general in the Taxation Section. Christine then moved to Dallas, where she gained experience in multistate tax issues affecting technology service providers as the state tax counsel for Electronic Data Systems Corp., representing the company in state tax controversies throughout the country. She later was a state & local tax consultant with PricewaterhouseCoopers and was of counsel with Bricker & Eckler LLP. Prior to her current appointment as chief of the tax section, she served as the Chief Legal Counsel for the Ohio Department of Taxation. Christine’s broad range of experience in both tax controversy and tax administration issues provides her with an understanding of many issues confronted by those who must navigate the sometimes complex legal, policy and business issues challenging government and industry in the administration of and compliance with state tax law. Christine is a graduate of the Ohio State University Moritz College of Law. Fredrick J. Nicely, Senior Tax Counsel, Council On State Taxation (COST) 122 C Street, NW, Suite 330, Washington, DC 20001-2109 202.484.5213 fnicely@statetax.org Fred Nicely is Senior Tax Counsel for the Council On State Taxation. Fred’s role as Senior Tax Counsel at COST extends to all aspects of the COST mission statement: “to preserve and promote equitable and nondiscriminatory state and local taxation of multijurisdictional business entities.” Before joining COST, Fred served in the Ohio Department of Taxation for four years as Deputy Tax Commissioner over Legal and for the prior seven years as the Department’s Chief

• Counsel. Fred’s responsibilities at the Department included testifying before legislative

committees, participating as an alternative delegate for Ohio at Streamlined Sales Tax Project meetings, and reviewing legal documents issued by the Department, including deciding the merits

• f filing an appeal. He is a frequent speaker and author on Ohio’s tax system and on multistate

tax issues generally. Fred also has extensive experience in public utility tax law, having served as an administrator of the Department’s public utility tax division. Fred’s undergraduate degree in psychology (with a concentration in accounting) is from the Ohio State University. He obtained his MBA and JD from Capital University in Columbus, Ohio.

Biographical Information

Adam J. Krupp, Commissioner Indiana Department of Revenue Indiana Government Center North, 100 North Senate Avenue, N248 Indianapolis, IN 46204 Adam J. Krupp was appointed commissioner of Indiana’s Department of Revenue (DOR) by Governor Eric Holcomb in January 2017. Before joining DOR, Krupp served as general counsel for Indiana’s Bureau of Motor Vehicles, where he played an integral role in the 2016 legislative

• verhaul of Indiana’s motor vehicle laws found in Title 9 of the Indiana Code. Additionally, Krupp

served the citizens of Indiana as special counsel to former Governor Mike Pence, where he focused on agency compliance with Indiana’s Access to Public Records Act, and as Deputy Director and Counsel for Indiana’s Division of Family Resources, where he oversaw litigation and played a key role in the modernization of Indiana’s Medicaid eligibility program. Krupp also clerked for the Honorable Paul D. Mathias of Indiana’s Court of Appeals. Krupp has extensive experience as a litigator in the private sector, where he practiced law in New York with Kasowitz, Benson, Torres & Friedman, LLP, after starting his career with White & Case,

• LLP. During his career in the private sector, Krupp represented clients in federal and state court

actions in a broad range of complex commercial litigation matters, including securities, intellectual property, class action defense, antitrust, regulatory investigations, breach of contract, fraud, products liability, RICO, and white-collar crime. He is licensed to practice law in Indiana, Georgia, New York, and Texas. A native of Rockledge, Florida, Krupp grew up in Plymouth, Indiana and graduated from Plymouth High School before attending Purdue University, where he was Phi Beta Kappa with a degree in secondary education specializing in speech communications, theatre, and English. He taught high school before attending Indiana University’s Robert H. McKinney School of Law. During the course of his career, Krupp taught courses in contract drafting and legal writing as an adjunct professor of law. Outside his duties as Commissioner, Krupp volunteers with Special Olympics Indiana and Make- A-Wish, and serves as Vice-President of the Boys & Girls Club of Boone County. In 2018, he was honored by the Indianapolis Business Journal as a “Forty Under 40” selection. Currently, Krupp resides in Zionsville with his wife and two sons.

• Staff Reductions—Ohio Department of

Taxation has reduced its staffing by one- third over past 8 years

• Fewer employees means that staff must focus
• n core administration functions, such as

processing returns

• Working appeals from assessments and

refund denials draws from limited resources, and may result in backlogs of pending appeals

• Process takes too long to get a final decision
• Issues settled in the past continue to arise on

current audit

• Expense involved especially to hire outside

legal counsel

• Process is cumbersome or difficult to

understand

• Mediation
• Offer in Compromise
• Independent Audit Review
• Arbitration
• Settlement Conferences

• Audit
• Administrative review
• Administrative appeal

• Mediation—an impartial “third-party” helps the

parties try to reach a resolution

• Arbitration—a neutral person hears arguments

and reviews evidence and decides the outcome. May be binding or nonbinding

• Neutral Evaluation—each party presents its case

to a neutral person called an evaluator. The evaluator opines on strengths and weaknesses of each case and recommends a resolution. Nonbinding

• Settlement Conferences—parties meet with

neutral person to discuss strengths and weaknesses and possible settlement

• May be helpful:
• Parties value their relationship
• Emotions are clouding parties’ perspectives
• May not be helpful:
• One party not willing to compromise
• One party has significant advantage over the other
• Issue is continuing, and one of policy to

government, or at heart of taxpayer’s business model

• May be helpful:
• Parties want a decision without the expense of a trial
• Subject matter is complex and parties want an expert in

the field to decide the dispute

• May not be helpful:
• If a party wants to retain control over how the case is

resolved

• If significant discovery is necessary to present the case
• Issue is continuing, and one of policy to government, or

at heart of taxpayer’s business model

• May be helpful:
• Parties want a decision without the expense of a trial
• Subject matter is complex and parties want an expert in

the field to decide the dispute

• May not be helpful:
• If a party wants to retain control over how the case is

resolved

• If significant discovery is necessary to present the case
• Issue is continuing, and one of policy to government, or

at heart of taxpayer’s business model

• May be helpful:
• Issues do not require a change in policy or business

model

• Better understanding of business and transactions

assessed may change positions taken on audit

• May not be helpful:
• If constitutional issues are involved
• Issue is continuing, and one of policy to

government, or at heart of taxpayer’s business model

What type of ADR process do you find most helpful?

• 1. Mediation
• 2. Offer in Compromise
• 3. Independent Audit Review
• 4. Arbitration
• 5. Settlement Conferences

Polling Question Link

• Review of selected programs

implemented in other states

• What has worked well and

what hasn’t

• In Early 2017, Indiana DOR began a focused

settlement initiative.

• Settlements took 2 forms:
• Fast Track Settlements for administrative matters
• Informal settlements and mediations for matters in

litigation

• Initiative driven by the high volume of

stagnant cases that harmed DOR’s credibility with both taxpayers and the judiciary.

• Baseline statistics (Dec. 31, 2016):
• 96 cases pending in Tax Court
• Average case age was 707 days
• Cases worth nearly $30,000,000 in revenue
• Win percentage in court approximately 13%
• Recovery from litigation approximately 8%
• 72 new cases filed on average per year (2006-16)
• Over 300 pending administrative protests

• 5 Phases of Settlement Initiative:
• PHASE 1: Identification of Targets
• All undesirable cases were targeted for settlement
• PHASE 2: Reorganization of Admin. Procedures
• Increased settlement authority and Fast Track Settlement opportunities

for taxpayers

• PHASE 3: Pursuit of Settlements
• Settlement letter sent to all taxpayers with pending cases
• PHASE 4: Increased Litigation Efforts
• Fewer cases permitted increased resources, such as outside counsel and

expert witnesses

• PHASE 5: Strategic Control Over New Litigation

• 2017 statistics (Dec. 31, 2017):
• 9 cases pending in Tax Court
• Average case age was 150 days
• Cases worth nearly $3,000,000 in revenue
• Win percentage in Tax Court approximately 25%
• Most cases went under advisement during prior regime
• Recovery from litigation approximately 8%
• 14 new cases filed
• Less than 200 pending administrative protests

• 2018 statistics (Dec. 31, 2018):
• 9 cases pending in Tax Court
• Average case age was 142 days
• Cases worth approximately $8,000,000 in revenue
• 1 case accounts for 85% of revenue at issue
• Win percentage in Tax Court approximately 100%
• Recovery from litigation approximately 100%
• 13 new cases filed
• Just over 200 pending administrative protests
• Average settlement recovery increased by 101%

• Early Mediation
• Can be initiated up to 30 days after issuance of a

notice of intent to assess

• Minimum amount at issue is $250,000
• Both taxpayer and DOR agree case is suited for

mediation

• If unsuccessful, taxpayer may pursue traditional

appeals processes

• Traditional Settlement Process
• Can be requested after NIA or after

assessment if issued

• Must state facts and legal issues involved,

and why amount at issue is excessive or assessment is in error

• Must state settlement proposal and

support

• Expedited Settlement Process Request
• Must provide a complete

complete explanation of facts and issues

• Must provide a specific settlement proposal

with dollar amount

• Must provide all documentation necessary to

support proposed settlement

• Must be able to participate in a conference or

hearing on an expedited basis, and have binding settlement authority at that time

• Independent Audit Review Conference (IARC)
• Must be requested after audit is complete but

before the audit is billed. Taxpayer requests it of the auditor at conclusion of the audit

• If requested, taxpayer meets with an Independent

Audit Reviewer (IAR), a highly knowledgeable Comptroller employee who is not an employee of the audit division

• Meeting includes reviewer, auditor and taxpayer,

where the IAR may ask questions of both taxpayer and auditor

• IARC not available when:
• Records were not provided during the audit or

refund examination process, and where audit liability must be estimated

• The Tax Policy Division has issued a written

taxability determination on the same issues in dispute

• Conference cannot be scheduled timely and

taxpayer refuses to sign a statute waiver

• The Comptroller’s office does not believe that the

particular issue is appropriate for an IARC

• After conference, reviewer submits a written

report to the IAR Team Leader with recommendations for resolution of issues

• Tax Policy Division may review

recommendations to make sure they are consistent with applicable law and agency policy

• Once recommendations are approved,

taxpayer and auditor are notified and provided a copy of the report

Should an ADR process have a set amount of time to get complete?

• 1. Yes
• 2. No
• 3. Depends

Polling Question Link

• The MTC has an ADR program for addressing tax

disputes between the states

• The specific objectives of the Program include:
• Providing a voluntary, cooperative means of resolving

state tax controversies involving two or more States

• Reducing costs and risks of litigation for both the public

and private sectors

• Providing a means of addressing the multistate character
• f the controversy so that interstate issues can be

resolved among the relevant parties consistently, potentially providing a better result if a taxpayer litigates the issues separately in the different states.

• Legislation—Is it required, or does agency

have authority under general settlement authority provisions

• Can it address continuing issues
• If process is binding, what are options for

appeal

• If a report is issued as part of unsuccessful

ADR process, is it admissible in later hearing

• n appeal
• Is the process and any report confidential, or

would it be subject to public records laws

• Will the process actually speed up resolution,
• r only delay getting to done?
• Can the process be used for multiple

taxpayers with same issue?

• Who conducts the ADR process and what is

the experience level of those heading it up? Retired government or tax practitioners or active employees

• 1. Deciding more issues at audit level rather

than pushing the decision to appeals level?

• 2. Set length of time for administrative appeal

process?

• 3. More staffing at BTA?
• 4. Larger investment in continuing education
• f auditors and legal staff?

Polling Question Link