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Measuring Uncertain Tax Positions

September 15, 2008

Businesses will need to be aware and prepare for the implications of tax standard FIN 48 and the affect it will have on financial statements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48).

The purpose of FIN 48 is to clarify the accounting for uncertain tax positions (detailed below) recognized in an enterprise's financial statements. FIN 48 requires companies to identify, measure, and evaluate all material uncertain tax positions for all tax jurisdictions (federal, states, and foreign) for years for which the statute of limitations (three years for federal, four years for CA) has not expired as of the reporting date. FIN 48 also requires that GAAP financial statements include certain additional disclosures related to these uncertain tax positions. For nonpublic enterprises the effective date for FIN 48 is fiscal years beginning after December 15, 2007.

Does this Apply to Our Company?

FIN 48 applies to any business taking a tax position related to income taxes. This includes, but is not limited to, C-corporations, S-corporations, partnerships with foreign and multi-state operations, and not-for-profit entities subject to unrelated business income taxes, as well as an entity that owns a material interest in a partnership or similar flow through entity.

What is a Tax Position?

A tax position refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities. This can result in a reduction of income taxes payable, a deferral of income taxes or a change in the expected realizability of deferred tax assets.

Tax positions also include, but are not limited to:

  • a decision not to file a tax return.
  • an allocation or a shift of income between jurisdictions.
  • the characterization of income or a decision to exclude reporting taxable income in a tax return.
  • a decision to classify a transaction, entity, or other position in a tax return as tax exempt.

How Armanino Can Help?

For many clients, the costs of analysis of uncertain tax positions will not be large; however, for complex situations, it could require a significant commitment of time and resources. Analysis of uncertain tax positions will result in varying amounts of time incurred depending upon individual complexity, circumstances, geographic locations, etc. Armanino can help with navigating through the complexities of this new compliance requirement.

September 15, 2008

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