Intangible Holding Companies In Peril

U.S. companies have employed a tax strategy of assigning trademarks, trade name, patents and other intangible assets for decades. However, state courts and revenue regulators seem determined to strike that strategy out of existence.

In the last year, state courts in New Jersey, North Carolina and New Mexico effectively have allowed revenue departments to declare income tax nexus even without the physical presence of intangible holding companies (IHCs) or passive investment companies (PICs). The resulting tax expense has effectively nullified the benefits of deducting royalties paid to these affiliated entities.

What should corporate taxpayers do now? The double-whammy of court rulings and the Financial Accounting Standards Board’s Interpretation 48, or FIN 48, have pushed companies toward registering IHCs and PICs for state tax purposes, or taking a voluntary compliance deal.

But, would corporate tax staffs and counsel be better off waiting and considering other options?

Listen as our panel of savvy tax advisors bottom-lines the trend in state court decisions, laws and regulations regarding IHCs and PICs. They’ll help you understand whether your company is now vulnerable to a substantial tax bill or has a Plan B to consider by focusing on:

• The recent court rulings – What courts have and haven’t ruled and, importantly, the state revenue departments’ policies in response.
• Whether transactions with an unrelated licensee could be more defensible than those with an affiliate.
• Which states today have tight or comparatively permissive laws when it comes to IHCs and PICs.
• Whether a FIN 48 review of uncertain tax positions should steer your company toward a voluntary compliance offer.

Our panel includes:

Don Griswold, State Tax Partner, McDermott Will & Emery, New York and Washington, D.C. He has focused on multi-state tax controversies and planning and local tax issues affecting major corporations for more than 20 years. He previously worked as a national partner-in-charge of SALT services for a Big Four accounting firm.

Richard Pomp, University of Connecticut. A widely sought expert witness for litigation involving complex tax matters, he has served as a consultant to numerous tax bodies, and is author or co-author of several noted books on state taxation. He served as director of New York State’s tax study commission on restructuring its corporate income tax.

Marvin Kirsner is a shareholder in the Boca Raton, Fla., office of the Greenberg Traurig law firm, where his specialties include multi-state tax issues and federal and state tax controversies. He represents corporate clients at the audit, appeal and trial levels. Marvin has written articles on the proper role of Congress in the intangible holding company controversy.

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