This document provides a summary of accounting, tax, and regulatory updates for the first half of 2010. It discusses new IRS requirements for corporations to report uncertain tax positions on a new Schedule UTP form. It summarizes provisions of the Hiring Incentives to Restore Employment Act of 2010 related to payroll tax holidays, tax credits for retaining workers, and increased tax compliance for foreign accounts. The document also outlines key provisions of health care reform legislation, including small business tax credits, the employer responsibility penalty, and various reporting requirements.

1. 2010 Mid-Year Accounting and Tax Update May 13, 2010 Catherine Fox-Simpson

3. Tax Legislation

4. Accounting Update

5. SEC Update2010 Mid-Year Update Page 2

6. Uncertain Tax Positions Client name - Event - Presentation title Page 3

8. IRS Announcement 2010-9

9. Certain Business Taxpayers to be required to report uncertain tax positions (UTP) in Tax Returns

10. April 19, 2010 IRS issues draft of new form

11. UTP reporting effective for 2010 tax returns2010 Mid-Year Update Page 4

13. Post Enron

14. July 2004, IRS Form M-3, Net Income(Loss) Reconciliation

15. FASB Interpretation No. 48 (FIN 48 )—now ASC 740-10

16. GAAP adoption 1/1/2007 (for Public Companies)

17. GAAP adoption 1/1/2009 (for Private Companies)

18. 2010, IRS Schedule UTP for Form 1120

19. Comment period ends June 1, 20102010 Mid-Year Update Page 5

21. Eliminate the Cat & Mouse game

22. IRS spends too much time trying to identify issues

23. IRS should spend time on the right issues

24. Commissioner Shulman, April 12, 2010:

25. “… I believe the new schedule [UTP] has the potential to be a much more valuable tool [than the M-3] for fair and effective tax administration.”2010 Mid-Year Update Page 6

27. Corporations filing Form 1120, U.S. Corporation Income Tax Return

28. Life Insurance and Property & Casualty Insurance Companies

29. Foreign Corporations filing U.S. tax returns

30. Assets equal or greater than $10 million

31. With Uncertain Tax Positions

32. Issuing Audited Financial Statements

33. Or, related party issues audited financials

34. And, recorded a reserve for the UTP (i.e., doesn’t recognize the full benefit of the tax position)

35. Schedule UTP not yet applicable to partnerships, REITs or Tax-Exempts2010 Mid-Year Update Page 7

37. “Recorded a reserve”

38. Report tax positions for which the entity has “recorded a reserve” under ASC 740-10

39. Report tax positions when no reserve recorded based on “expectation to litigate”

40. Report tax positions when no reserve based on “IRS administrative practice”

41. Piggyback on the GAAP rules for UTP

42. “Tax Position” = A line item in the tax return that would result in an adjustment if the taxpayer treatment is not sustained2010 Mid-Year Update Page 8

44. Tax positions which do not meet the “more-likely-than-not” (MLTN) standard

45. MLTN is more than 50% likely

46. Therefore, tax positions that are 50/50 or less likely to be sustained by the IRS

47. Tax positions that are MLTN but less than “highly certain” may still have a reserve

48. Since the entity may have reserved some but not all of the tax benefit (i.e., not recognized the full benefit of the position)

49. “Highly certain” not defined in GAAP

50. Literature states: “clear and unambiguous tax law” and “management is highly confident” in the sustainability of tax positions as providing high certainty.

51. Recognize the full amount of the tax positions meeting the highly certain criteria.2010 Mid-Year Update Page 9

53. A Financial Statement on which an independent third party expresses an opinion

54. GAAP

55. IFRS

56. Other country specific accounting

57. Includes modified versions such as, modified GAAP2010 Mid-Year Update Page 10

59. An increase in a liability for income taxes payable

60. A reduction in an income tax refund

61. An increase in a deferred tax liability

62. A reduction in a deferred tax asset

63. Initial recording of a reserve triggers reporting of a tax position

64. Subsequent reserve increases or decreases are not reported2010 Mid-Year Update Page 11

66. Consolidated Return: file a single Schedule UTP for the group

67. No need to identify to which member the UTP pertains or who recorded a reserve

68. Separate return filers would be required to include Schedule UTP

69. Related Party

70. 50% or more [§318]/more than 50% [§§267 & 707]

71. Any entity included in a consolidated audited financial statement in which the subject entity is included2010 Mid-Year Update Page 12

73. Disclose UTP as Permanent or Temporary

74. Compute Maximum Tax Adjustment (MTA)

75. An estimate of the maximum amount of potential US federal income tax liability

76. For the tax year in which the tax position is taken—MTA determined on an annual basis

77. Utilize a 35% tax rate for the calculation of the MTA

78. Tax credits: estimate the total amount of credit potentially disallowed

79. No Netting: the MTA for each item of income and deduction is treated separately

80. Offsets allowed only for items relating to the same tax position

81. Disclose UTP even if offset by NOLs

82. Unit of Account

83. Must be the same as used for GAAP2010 Mid-Year Update Page 13

85. Tax Legislation HIRE ACT Client name - Event - Presentation title Page 15

87. Hiring and Business Stimulus Incentives

88. Foreign Compliance

89. Revenue Raisers2010 Mid-Year Update Page 16

91. Social Security Tax (OASDI)—6.2%

92. Wages paid March 19 to December 31, 2010

93. Holiday does not apply to the Medicare Tax—1.45%

94. Maximum tax exemption per employee is about $6,600

95. $106,800 (OASDI base) X 6.2% = $6,621.60

96. No minimum hours of employee work to qualify

97. Applicable to taxable businesses and tax-exempt organizations

98. Not applicable to public-sector employees (Federal, State and Local Government)

99. Public colleges and universities can qualify

100. Not applicable to household employees

101. Applicable to new businesses

102. Applicable if employer has been claiming COBRA premium assistance credit and employer rehires2010 Mid-Year Update Page 17

104. Begins employment after February 3 and before January 1, 2011

105. Unemployed: hasn’t been employed more than 40 hours

106. During the 60-day period before Hire

107. Certification by signed affidavit (new Form W-11)

108. 60-day period must be continuous but can span 2009 — 2010

111. Not applicable to family members and certain other related parties2010 Mid-Year Update Page 18

113. Claimed on Form 941, Quarterly Payroll Tax Return

114. Beginning with 2010 Q2 filing

115. Exemption for March 19 to March 31 claimed on Q2 941 filing

116. Revised forms W-2 and W-3 to indicate wages eligible for the exemption

117. Payroll Tax Holiday—Work Opportunity Tax Credits

118. Wages on which employer claims the HIRE tax exemption cannot be used for the WOTC

119. HIRE Holiday only good for wages thru December 312010 Mid-Year Update Page 19

121. $1,000 Credit per employee

122. Employed any time during the year

123. Employed for no less then 52 consecutive weeks

124. Wages for last 26 weeks must equal at least 80% of wages for the first 26 weeks

125. Credit is lesser of $1,000 or 6.2% of wages paid during the 52 week period

126. Wages exceeding $16,129 will generate maximum credit

127. Applicable for any tax year ending after March 18, 2010

128. Calendar year taxpayer able to claim credit in 2011 when 52 week period satisfied

129. No carryback to years beginning before March 18, 20102010 Mid-Year Update Page 20

132. New withholding requirements

133. New reporting requirements2010 Mid-Year Update Page 22

135. Payments to foreign financial institution (Bank, Brokerage, etc.)

136. Not required if foreign bank reports information regarding its “US Accounts”

137. Withholding required on

138. Interest

139. Dividends

140. Rents

141. Royalties

142. Compensation2010 Mid-Year Update Page 23

144. Any financial account which is held by U.S. person (other than publicly traded corporations, tax-exempts, state & local government entities, REITS, etc.)

145. Financial account held by a U.S. owned foreign entity (more than 10% owned by US person)

146. Exception: where all accounts held by a natural person do not exceed $50,000

147. Withholding tax avoided by foreign bank by agreement with IRS to:

148. Determine whether each of its accounts is a US Account

149. Comply with verification and due diligence procedures

150. Annually report the name, address and TIN of the US Account holder, account number, account balance and withdrawals and payments

151. Comply with IRS information requests

152. Obtain waiver for each US Account holder of foreign law confidentiality provisions2010 Mid-Year Update Page 24

154. Aggregate value in excess of $50,000

155. Deposit or custodial account with a foreign financial institution

156. Stocks or securities issued by a foreign person

157. Financial contract held for investment issued by non US person

158. Any interest in a foreign entity

159. In addition to Foreign Bank and Financial Account Report (FBAR)—TD F 90-22.1

160. Effective for Taxable Years after Enactment (i.e., 2011)2010 Mid-Year Update Page 25

162. New 40% penalty on any underpayment of tax attributable to undisclosed foreign financial information2010 Mid-Year Update Page 26

164. Six-year Statute

165. Omissions greater than $5,000 and the income is attributable to foreign financial accounts

166. Suspension of start of Statute running for failure to timely file:

167. Form 5471, Controlled Foreign Corporation reporting

168. Form 8858, Foreign Disregarded Entity

169. Form 8865, Controlled Foreign Partnership reporting

170. Form 5472, Foreign Related Party reporting

171. Form 926, transfers to foreign persons

172. Form 3520-A, Foreign Trust reporting

173. New foreign financial asset reporting2010 Mid-Year Update Page 27

174. Tax Legislation Health Care Client name - Event - Presentation title Page 28

175. Health Care Reform

177. The Patient Protection and Affordable Care Act

178. Health Care and Education Reconciliation Act of 2010

180. 25 or fewer employees and average annual wages of less than $50,000

181. Eligible for a credit up to 50% of non-elective contributions the business makes on behalf of its employees for insurance premiums

182. 10 or fewer employees and average wages less than $25,000

183. Eligible for a credit of 100%

184. Credit is available for tax years beginning after December 31, 2009

185. Included as a General Business Credit

186. Phased in through 2013

187. Maximum credit during phase-in is 35%Client name - Event - Presentation title Page 31

189. Does not offer coverage for all its full-time employees

190. Offers minimum essential coverage that is unaffordable

191. Offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60%

192. Is required to pay a penalty if any full-time employee is certified to the employer as having purchased insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.

193. Applicable large employer – employed an average of at least 50 full-time employees during the preceding calendar year.Client name - Event - Presentation title Page 32

195. Calculated monthly.

196. Penalty – excise tax equal to the number of full-time employees in excess of 30 multiplied by $166.67 (or $2,000 annually)

197. Calculated without regards to how many employees are receiving a premium tax credit or cost-sharing reduction.

198. Effective for periods beginning after December 31, 2013Client name - Event - Presentation title Page 33

200. Effective for tax years beginning after December 31, 2010

201. ASC 740 ImplicationsClient name - Event - Presentation title Page 34

203. Information to be provided:

204. Name, address and taxpayer identification number of the primary insured and others obtaining benefit under the coverage

205. Dates during which the individual was covered under the policy during the calendar year

206. Whether the coverage is a qualified health plan offered through an exchange

207. The amount of any premium tax credit or cost-sharing reduction received by the individual with respect to the such coverage

208. Any other information that Treasury requires

209. Effective for calendar years beginning after 2013Client name - Event - Presentation title Page 35

210. Information Reporting Disclosure on Form W-2 the value of the employee’s health insurance coverage sponsored by the employer. Effective for tax periods beginning after December 31, 2010 Client name - Event - Presentation title Page 36

212. Tax is equal to 40% of the excess amount

213. 2018 threshold amount is $10,200 for individual coverage and $27,500 for employee coverage.

214. Higher limits provided for high risk professions

215. After 2018, the annual limitation is adjusted for inflation.

216. Provision is effective for tax years beginning after December 31, 2017Client name - Event - Presentation title Page 37

217. Medical Device Excise Tax 2.3% excise tax on the sale of certain medical devices Applies to any medical device intended for humans, except eyeglasses, contact lenses, hearing aids, and medical devices generally sold at retail to the public for individual use. Effective for sales after December 31, 2012 Client name - Event - Presentation title Page 38

219. Effective for payments made after December 31, 2011Client name - Event - Presentation title Page 39

221. A transaction will be treated as having economic substance only if the transaction changes the taxpayer’s position in a meaningful way (apart from the tax benefits) and the taxpayer has a substantial purpose (apart from the tax benefits) for entering into the transaction.

222. Economic substance originally created by the courts, which has resulted in various interpretations

223. Codification results in a two-part test

224. Failure to meet economic substance test included as a listed transactionClient name - Event - Presentation title Page 40

225. Implementation Timeline Client name - Event - Presentation title Page 41

226. What’s next? Client name - Event - Presentation title Page 42