One of the more burdensome regulations to surface in recent years, the Financial Accounting Standards Boards’ Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” is turning tax preparers and their corporate clients everywhere into oddsmakers.
“Previously, a company recorded contingent liabilities for the tax exposure related to uncertain tax positions,” writes John Kohler in this Bureau of National Affairs article. “Now, before the tax benefit for any expense for other tax position can be recorded in the financial statements, a company must complete an evaluation under the new FIN 48.
“In short,” writes Kohler, “the evaluation requires a company to first identify all tax positions. The company must determine that each tax position first meets the more-likely-than-not (MLTN) recognition threshold. For ‘highly certain’ tax positions, the company may need to document that the position is highly certain; however, no measurement analysis may be required and the full tax benefit of the item may be recorded. For any other positions that meet the MLTN threshold, the company must complete a probability analysis to measure the amount of the tax benefit that may be recognized for financial statement purposes.
“The creation of the probability analysis will challenge tax professionals to try their hands as oddsmakers,” writes Kohler.
It sounds complicated enough. Putting it into action is surely a daunting task. Kohler’s article is a great place to begin. It offers strategies, probability tables and loads of examples and advice.
How are you dealing with FIN 48?