What a Surprise! The IRS is Interested in FIN 48!

On January 26, 2010, the IRS released Announcement 2010-9, which announces the development of a tax return schedule to facilitate the disclosure of information with respect to uncertain tax positions. As announced, the new disclosure requirement would apply to public and private companies with assets over $10 million that have financial statements prepared under FIN 48 reflecting uncertain tax positions. The proposed effective date would be for returns filed after the release of the new schedule. However, the IRS will provide that it will not apply to tax returns related to 2009.

Companies would be required to provide a concise description of each uncertain tax position for which the taxpayer or related entity has recorded a reserve in its financial statements and the maximum potential federal tax liability attributable to each uncertain tax position. This disclosure would be made on the schedule currently being developed by the IRS. In defining “uncertain tax positions” for which disclosure would be required, Announcement 2010-9 includes a position related to the determination of federal income tax liability for which a reserve was not established because the taxpayer expected to litigate the position or because the taxpayer determined that the IRS has a general administrative practice not to examine the position.

In a speech, IRS Commissioner, Douglas Shulman, stressed that with respect to the concise statement of the issue, the IRS means a few sentences that inform the Service of the nature of the issue rather than pages of factual description or legal analysis. However, Announcement 2010-9, which further clarifies the description requirements, requires significant information.

Stay tuned!

The “Un-Disclosure”

Lately, I’ve been getting a lot of questions related to FIN 48, Accounting for Uncertainty in Income Taxes (now codified as FASB ASC 740-10). One question, in particular, seems to keep coming up. It goes something like this: “What kind of disclosure do I need to include in the notes if we have adopted FIN 48, but we have determined that there are no uncertain income tax positions.”

The simple answer is: no disclosure! Think about that for a minute…we generally don’t sit around trying to think of the proper disclosure for all of the thousands of GAAP requirements that don’t apply to a particular entity. But, for some reason, we seem to look at FIN 48 differently. The bottom line is this: neither FIN 48, nor any other accounting pronouncement, requires you to disclose the fact that it does not apply.

Even the FASB is on record stating that to do so with respect to FIN 48 would set a dangerous precedent for requiring a similar disclosure with respect to all accounting standards for which there is no material effect on the financial statements.

So, relax…no need to disclose the fact that FIN 48 doesn’t apply or that there are no uncertain income tax positions.

I guess silence really is golden!

It's Deja Vu All Over Again!

A blue-ribbon panel will look into whether private U.S. companies should get their own version of accounting rules. The panel is sponsored by the American Institute of Certified Public Accountants, the Financial Accounting Foundation, and the National Association of State Boards of Accountancy. Announced last month, the panel will explore the process of accounting standard-setting for private companies and recommend whether they need their own version of generally accepted accounting principles.

The panel's members, who will be named in January, will include lenders, investors, owners, preparers, auditors, and regulators. NASBA president and CEO David Costello says the sponsoring group has yet to decide on the time frame for when the panel needs to make its final recommendations, but that the group will likely seek input from the public.

Other groups have addressed the question of whether private companies need a "little GAAP." The Financial Accounting Standards Board has previously balked at the notion, but it has co-sponsored, along with the AICPA, the Private Company Financial Reporting (PCFR) Committee, which has been providing input to the standard-setting process on behalf of private companies.
The debate intensified earlier in this decade as financial reporting became more onerous for public companies following the collapse of Enron and the passage of the Sarbanes-Oxley Act. The resulting increased scrutiny by auditors spilled over to private companies, which have reported their audit fees rising along with their expense of following GAAP.

Moreover, the changes have created a disparity between the needs of private- and public-company investors. The proliferation of rules out of FASB is basically being driven by public-company investors. Because of Regulation FD, they don't have the ability that private-company users of financial information have, to call up a company and ask questions. They want more and more disclosure and information in the financial statements that the users of private-company financials really don't need.

In addition, the new blue-ribbon panel will have to broach the subject of IFRS, which has its own separate set of guidelines for private companies. Released over the summer, "IFRS Light" offers small and midsize companies a slimmed-down version of international reporting standards and the promise that they'll be revised only once every three years.

Stay tuned!