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FOR IMMEDIATE RELEASE

FASB Interpretation No. 48: Accounting for Uncertainty in Income Taxes

November 16, 2009

What are the New Requirements?

The Financial Accounting Standards Board (“FASB”) recently issued new requirements regarding how entities are to recognize, measure, and disclose uncertainty with respect to positions taken on their income tax returns. The new requirements were issued in a document entitled “FASB Interpretation No. 48: Accounting for Uncertainty in Income Taxes.” The interpretation applies solely to federal, state, local and foreign taxes based on income. The accounting for other types of taxes is unaffected by the Interpretation.  This recent accounting pronouncement was disclosed in your last issued financial statement.  

Only those positions that are judged by management to be more than 50% likely of being sustained upon examination will be permitted to be recognized. The term “examination” is defined broadly to encompass any related appeals process including litigation. Of particular note is a prohibition against considering the probability of examination. Instead, it is to be assumed that all tax positions will be examined by the relevant taxing jurisdiction and that the examiner will have full knowledge of all relevant information.  

For those positions that do not meet the more-than-likely-not threshold, a liability for unrecognized tax benefits will need to be established. If a tax position meets the more-than-likely-not threshold, it is then subject to a second step to measure the amount to recognize in the financial statements. Additionally, any applicable interest and penalties will be required to be accrued for amounts not recognized.  

Tax positions are defined quite broadly and include such matter as:

• Decisions as to whether to file a tax return in a jurisdiction
  
• Allocations of income between jurisdictions
  
• Decisions to exclude income and/or include expenses in a tax return, even if such decision is reversed in a future period
  
• Characterizations of capital gain versus ordinary income
  
• Classifying an entity or transaction as tax exempt

The following summarizes certain new prescribed disclosures to be made in annual financial statements in addition to those already required:

• The total amounts of interest and penalties recognized in the balance sheet and income statement, and the entity’s policy as to whether it classifies interest and penalties as income taxes or elsewhere in the financial statements
  
• The tax years that remain subject to examination by major taxing jurisdictions
  

When is Adoption Required?

The Interpretation is effective for nonpublic entities for fiscal years beginning after December 15, 2008.

For More Information Contact:

Lohman Company, PLLC
Stapley Center
1630 South Stapley Drive, Suite 108
Mesa, AZ  85204

Phone:   (480) 355-1100
Fax:       (480) 355-1130
Internet: info@lohmancompany.com