All Senior Executives Need to be Aware of FIN 48

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Just when you thought it was safe again, from the horrors of FASB pronouncements (remember FAS 123r and the stock option accounting nightmare) along comes FIN 48, "Accounting for Uncertainty in Income Taxes."

While many in the accounting profession thought this was a bad idea, since it could give the IRS a roadmap to auditing certain corporate tax positions, nobody thought Congress would also use it. Surprise!

Charles Dargan, CEO of http://www.cfo911solutions.com offers, "While many in the accounting profession thought this was a bad idea, since it could give the IRS a roadmap to auditing certain corporate tax positions, nobody thought Congress would also use it. Surprise!"

The Senate's Permanent Subcommittee on Investigations, led by Michigan Democratic Senator Carl Levin, is using the FIN 48 disclosures to investigate companies that disclosed large tax reserves. There are some 30 companies that the Senate investigators have requested information regarding details of tax transactions, as reported in the Wall Street Journal. Where it goes from here will be interesting and probably unnerving.

Before FIN 48, none of this information was required to be disclosed in the financial statements, and most if not all corporations chose not to provide such information, for the obvious reasons. Most tax issues, and especially aggressive tax positions, were adjudicated with the IRS or in court, away from the public arena. Now, this will not be the case.

From the FASB summary, FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The first step is recognition: The enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

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Michael Miller
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