The two objectives of this internationally branded company’s corporate tax counsel were strategic, compelling and clear.  The first was to address the serious risk of harm to the company’s leadership team and its members’ immediate families – particularly given that more than 40 individuals had either made direct threats or exhibited unusual interest in various members of this high-profile group since the inception of the company’s executive protection program.

Executive Protection is Not Just a Security Matter

The second goal was to demonstrate to the IRS that a Title 26-CFR-compliant “bona fide business-oriented security concern” existed and, because of this technical fact, that the costs associated with the company’s executive protection program represented legitimately deductible expenses from gross income for tax reporting purposes. As a result, the industry leader asked Hillard Heintze to conduct a comprehensive, highly intensive and best practice-based assessment of all facts and circumstances relating to the safety and security of the company’s CEO and Executive Vice Presidents, as well as their respective families.

Protecting Executives While Also Following Prudent Tax-Related Strategies

As a direct result of this assessment, the company’s executives-at-risk found comfort in the assurance that all threats and methods of compromise that are known, anticipatable, preventable and directed at other high risk individuals in similar positions of risk and exposure are competently being addressed by the company’s executive protection program. At the same time, the company’s board members realized comparable levels of assurance that they were undertaking the appropriate risk-based actions to protect the company’s senior executives and their families. And the Fortune 100 company’s accountants, tax advisors, and both internal and external auditors gained the documentation they needed to defend and explain the company’s tax-related strategies and deductions.

Unplugged: The Project Manager’s Perspective

“You know, we tend to push beyond the strict boundaries of a traditional security engagement. Because ‘bolt on’ solutions are not the best way to create value.  So we spend a lot of time ‘getting smart’ about precisely where and how security supports the individual organization’s objectives.  We delve into the critical hooks that a top-notch security program needs to have with other decision hubs and cost centers in the organization. Like HR. Operations. Finance. Legal. And Tax. Definitely Tax.  Take this project. You could have a great executive protection program, but not be compliant with the tax regulations regarding security programs – because neither the CFO nor general counsel understands the technical security intricacies. And when’s the last time you saw a CSO hired for his tax and accounting expertise?”

The ACTION WEDNESDAY Tool Box: Three Key Take-Aways

  1. Recognize that security-related expenditures have special tax-related implications.  Get to know these.
  2. Don’t spin wheels pulling together an in-house assessment team.  For Title 26-related purposes, the IRS requires that the executive protection assessment be independent.
  3. Consider having various in-house functions – such as legal, tax, security and HR – share in the cost of the assessment since each will benefit from the initiative.

(What’s it like on the front line supporting the firm’s clients? What are the challenges the firm’s experts help senior business executives, general counsel, board members and other decision-makers address? Welcome to ACTION WEDNESDAY. Every Wednesday, the Front Line Blog publishes a new case study.)

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