News & Publications

Are CFO’s Overlooking Free Money?

Knowledge of Tax Credits & Incentives Lacking among CFO’s

A recent survey conducted by Ernst & Young found that there is a large gap between what a business’ tax executives know about incentives and what its CFO knows.  CFO Magazine indicates that 36 percent of the respondents to the survey said their CFO was only “somewhat aware” of potential benefits from tax credits and incentives, while 20 percent said their CFO is “not at all aware”.  The business impact of this lack of knowledge can significantly affect profitability.

Use of Credits and Incentives
Failing to understand tax credits and incentives can negatively affect a company via two means:
1)    Not claiming the credit or incentive.  You won’t get what you don’t ask for.  Many of these incentives are newer and are specific to a local or state jurisdiction. Local political leaders created these opportunities in order to generate jobs or revenue within their location.  Many times tax personnel may be aware of these programs, but the news doesn’t travel up to the CFO where decisions are often made regarding sourcing new facilities, adding production lines, and otherwise spurring growth for the business within a location.  On the flip side, the tax department is typically not involved (at least initially) when it comes to key business decisions affecting growth in a location.
2)    Claiming the credit or incentive, but failing to meet the criteria to maintain the credit or incentive.  Most of these incentives do come with strings attached, sometimes many strings.  Whether it is the growth of jobs over a 5 or 10 year period, capital investment of a certain dollar threshold, or some other measurable growth formula that benefits the economy of that location, these can be the fine print that a company may fail to plan for, or forget about 3 years down the road.  If these criteria are not met, it could mean no additional credit can be claimed, or worse, a company may have to pay back a portion of the credit it has already received.

Collaboration among departments to discuss such potential tax breaks and to determine whether or not to apply for and accept them can give a competitive edge to a company that is looking to grow their business.  Many of the credits are refundable or absorbed on taxes the business would normally pay out anyway.  Some credits can also be carried forward until they can be used in the event losses restrict current use.  Accounting firms such as Allyn can come in and discuss options and availability of credits and incentives based on your business locations.

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