Aside from a tax-focused culture, what are other foundational elements of a TaxRM process?
Another foundational element of a TaxRM process is a documented tax philosophy for the organization. This philosophy articulates the manner in which the organization will manage tax liabilities through acquisitions and dispositions, operations, accounting policies and financial reporting. There is a great deal of risk exposure surrounding each of these issues and, hence, a large amount of tax uncertainty. TaxRM processes are, therefore, focused on managing the variables associated with these issues and the requisite tax liabilities they generate.
A tax philosophy is more than an articulated statement, which relates that the organization will seek to minimize its tax liabilities. In fact, in properly structured environments, taxes can help companies minimize risks associated with their investments. For example, if a company experiences losses, it may receive refundable tax credits associated with this loss. These credits serve to minimize the firm’s risk exposure as the government has now borne a portion of the firm’s risk by providing for refunds of taxes previously paid or serve as credits against future tax liabilities.
Once a tax philosophy has been established, an organization can begin to implement working elements of a formal TaxRM process.
How can nonprofits also benefit from TaxRM?
Although nonprofits do not pay taxes on their core operations, a portion of their operations may be subject to unrelated business income tax (UBIT). For instance, although a hospital is a nonprofit organization, hospitals may pay UBIT on income earned in their gift shops if effective TaxRM processes are not in place. In this manner, an effective TaxRM process can help nonprofits minimize UBIT through careful and deliberate planning, affording the organization greater after-tax cash flow to fund its core operations and further its mission. As such, TaxRM should be a key element of ERM processes in nonprofits as well as for-profit corporations.
Walter M. McGrail, JD, CPA, is a senior manager at Cendrowski Corporate Advisors. Reach him at (866) 717-1607 or [email protected] or visit www.cca-advisors.com.
