When is fin 48 required

This group of financial statement users, preparers and CPA practitioners evaluates the costs and benefits of the required procedures and advises FASB on how the day-to-day technical activities of private companies are affected by FASB standards. The PCFRC also believed that some pass-through entities did not understand that the interpretation applied to them. These concerns continued into , and on Oct. On Oct. At its Dec. Such companies must also disclose their accounting policy for evaluating uncertain tax positions in each set of financial statements to which the deferral applies.

At its Oct. FIN 48 has been covered in numerous national conferences and state society programs. On the other hand, however, some practitioners have complained about late and inadequate guidance from FASB. The deferrals given so far have encouraged some to expect more deferrals or possibly an exemption for private companies. Some businesses have resisted adopting FIN 48 for reasons other than not understanding the interpretation.

The analysis is complex and burdensome and may require outside assistance to properly evaluate positions. A few taxpayers and their advisers seem to be holding out for a new rule as convergence toward international accounting standards progresses. Paragraph 21 a requires a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period. While these disclosure exemptions reduce some of the FIN 48 burden, significant and controversial disclosure requirements remain.

Prior positions must be reviewed for possible:. Subsequent changes in judgment that lead to changes in recognition, derecognition, and measurement should result from the evaluation of new information and not from a new evaluation or new interpretation by management of information that was available in a previous financial reporting period. In addition, interest and penalties on the uncertain tax positions begin to accrue in accordance with relevant tax law in each subsequent reporting period.

How are true-up adjustments handled? Other changes may occur in a post-FIN 48 tax world. Workpapers might be requested to explain information contained in a tax footnote to an SEC-required filing or to support the separation of the federal tax expense into its current and noncurrent components on Schedule M-3, part III, lines 1 and 2. According to one IRS official:. In my opinion, the IRS would not want to be lessening the impact of transparency of financial information because of its tax accrual workpaper policy.

We really have to wait and see how FIN 48 plays out and what kinds of disclosures are made … in deciding what issues to examine [on the tax accrual workpaper policy]. I want to make that clear. Under current IRS policy, requests for taxpayer workpapers are mostly limited to tax shelter issues.

However, the Service has expressed an interest in reviewing the computations underlying the effective tax rate disclosed in the financial statements. Disclosure policies such as the one on tax accrual workpapers become even more problematic when a multinational taxpayer has relevant documents that reside or affect tax computations in more than one taxing jurisdiction.

It is the role of the IRS, not the taxpayer, to uncover the most taxpayer-friendly applications of the tax law and to apply audit tests so as to maintain the integrity of the tax system—first allowing the taxpayer to have its own say in resolving uncertainties as the tax law evolves. Even in a post-Enron world, there is the broader issue of layering the FIN 48 financial accounting process on top of the complex Schedule M-3 tax reporting requirements.

The legacy of this combination may eventually be remembered not so fondly as classic financial and tax reporting overkill.

For more information about this article, contact Professor Raabe at raabe fisher. Earnings management in the tax accrual for income taxes has been well documented. When the Schedule M-3 reporting requirements are fully in place, perhaps as many as , annual tax returns will include the schedule. The full text of the letter is available at TNT , Doc. The author argues that the standard could be met by evaluating the MLTN chance of settlement by an appellate conferee or from litigation and then selecting the FIN 48 adjustment to make, depending on whether the company is willing to litigate the issue.

Business meal deductions after the TCJA. This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID Toggle search Toggle navigation. Hennig, William A. Raabe, and John O. FIN 48 requires a reevaluation of all tax positions at the end of each reporting period. Prior recognized positions may be derecognized or remeasured, and prior unrecognized positions may be recognized in each reevaluation.

Tax Strategies Current tax planning strategies include: Establishing a set of financial goals; Developing a tax strategy as part of overall financial goals; Planning and executing a series of transactions aimed at managing tax liability; Reporting the results of the transactions on financial statements and tax returns; Separately subjecting these reports to review by financial and tax auditors; Justifying tax positions and, when necessary, revising financial reporting if required through SEC restatements; and Adjusting the tax liability after settlement of a tax issue through negotiation and perhaps litigation.

A projection in some detail regarding how the unrecognized tax benefits are expected to change over the next 12 months, including the nature of each of the uncertain tax positions, estimated dollar amounts, and the conditions under which a change in the tax benefits would occur. The impact on the effective tax rate of disclosed unrealized tax benefits.

A description of the financial accounting policies on the treatment of applicable accrued interest and penalties and their amounts.

Accounting for Interest and Penalties Under FIN 48 FIN 48 requires recognition of interest expense in the first period interest would begin accruing according to provisions of the relevant tax law: The amount of interest expense to be recognized shall be computed by applying the applicable statutory rate of interest to the difference between the tax position recognized in accordance with this Interpretation and the amount previously taken or expected to be taken in a tax return.

The FASB provides some flexibility in the reporting of the accrued interest: Interest recognized in accordance with paragraph 15 of this Interpretation may be classified in the financial statements as either income taxes or interest expense, based on the accounting policy election of the taxpayer. Prior positions must be reviewed for possible: Derecognition, if the MLTN standard no longer is met; Recognition, if old positions now meet the MLTN requirement; and Remeasurement, if new information would change the computation of the recognized amount.

Thus: Subsequent changes in judgment that lead to changes in recognition, derecognition, and measurement should result from the evaluation of new information and not from a new evaluation or new interpretation by management of information that was available in a previous financial reporting period. By clicking "Save Settings", you agree to the use of these tools.

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Personal information may include your IP address, digital identifiers, and your interactions with digital properties. A first step in analyzing FIN 48 will be to prepare a thorough inventory of all tax positions. Significantly, FIN 48 requires a conclusion that all or part of a tax position is more-likely-than-not sustainable, solely based on technical merits. The risk of detection or audit by tax authorities cannot be considered as a factor.

Non-filing positions encountered most often for various states are subject to an all or nothing test, which if not met, will require recording the entire exposure, unless apportionment is possible and chosen. Under FIN 48, applicable interest and penalties must be accrued.