ASU 2009-06 – Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities (ASU 2009-06) was issued to address three issues concerning uncertainty in income taxes and nonpublic entities.
I think the most important clarification from this ASU is that tax-exempt not-for-profit entities need to disclose:
1.The total amount of interest and penalties recognized in the income statement and the balance sheet.
2.The details of any tax position that will significantly increase or decrease within twelve months of the reporting date.
3.A description of tax years that remain subject to examination by major tax jurisdictions.
Since most tax-exempt entities do not have any uncertain tax positions, it will be easy to forget that you need to say that you do not have any uncertain tax positions in your filings. For instance in the 11K benefit plan statements that are filed with the SEC.
Other issues clarified in the ASU are:
1. Is the income tax paid by the entity attributable to the entity or its owners?
An entity needs to look at the rules and regulations of the taxing jurisdiction to determine if the income taxes for that jurisdiction are attributable to the owners or the entity. For example if the tax jurisdiction requires the owners to file a tax return or allows the owners to take a credit for the taxes paid by the entity, then the taxes are attributable to the owners.
2. What constitutes a tax position for a pass-through or a tax-exempt not-for-profit entity?
A tax position includes: a decision not to file a tax return; an allocation or shift of income between jurisdictions; a decision to exclude reporting taxable income in a tax return; a decision to classify a transaction or entity as tax-exempt; and an entity’s status including its status as a pass-through entity or a tax-exempt not-for-profit.
3. How should accounting for uncertainty in income taxes be applied when a group of related entities comprise both taxable and nontaxable entities?
An entity needs to take into account the tax status of all the individual entities within the group even if the reporting entity is tax-exempt. For example if a partnership owns a taxable corporation, any uncertain tax positions must be recorded on the partnership’s filings even though it is a pass-through entity.
Please check your disclosures for your tax-exempt entities and make sure there is language disclosing that there is no interest or penalties recognized in the income statement or balance sheet, that no tax position is expected to significantly increase or decrease over the next twelve months and that no tax year remains subject to examination by any major tax jurisdictions.