FASB Will Discuss Delay of FIN 48

Delaying the effective date of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), an interpretation of FAS 109, is on the agenda of the Financial Accounting Standards Board’s (FASB) regularly scheduled meeting on Wednesday, January 17. The Board has received over 300 letters on Fin 48 since it was it was issued last July, many requesting that the effective date, December 16, 2006 for companies with fiscal years beginning on that date or later, be delayed for one year, the New York Times reports.

In a December 12, 2006 letter to FASB, David L. Bernard, vice president for taxes and real estate at Kimberly-Clark and president of Tax Executives Institute Inc., (TEI) asked for the delay because “disclosures may be incomplete (or excessive), inaccurate, and inconsistent and therefore impeded rather than advance the objective of providing investors, regulators, and the capital markets appropriate financial statement information about their tax positions,” the Times reports.

Jack T. Ciesielski, president of R. G. Associates and editor of The Analyst’s Accounting Observer points out however, according to the Times, that companies have had over two years to prepare for the new rule. “I find it difficult to believe that corporate tax departments do not have a grip on which tax positions under their purview have a less than 50 percent chance of being sustained under an examination.”

Most of the letters to FASB requesting the change in effective date have been received from corporations. No big accounting firm has asked for the delay, the Times says.

The last minute flood of letters to FASB requesting a delay likely reflects the fact that companies didn’t start examining the interpretation until recently, and when they did the amount of date to review was “overwhelming,’ says Robert Willens, a tax and accounting analyst at Lehman Brothers, according to CFO.com.

Raymond Zaniewski, tax reporting director at Monster Worldwide, addressed the potential scope of the review required to meet the requirements of FIN 48 in comments to CFO.com. “Can you possibly fathom any tax audit of a large multinational company being completed in a period of less than a year for one jurisdiction, let alone for every jurisdiction (federal, state and international) in which we are filing and those in which we should be filing, for all open years, and all being conducted concurrently?” [italics in original] “

FIN 48 was drafted in 2004 when the Securities and Exchange Commission (SEC) asked FASB to develop the interpretation because staff members had questioned whether tax assets should be recognized when the benefit had not yet been received. At a roundtable discussion in March 2004 representatives of the big Four Accounting firms, SEC staff and FASB staff noted “diversity in practice” in the recognition of tax benefits. An exposure draft was released on July 14, 2005 and modified to allow, among other things, a change from requiring that a company recognize the benefit only if it had a “high probability” of surviving an audit to a slightly better than 50-50 chance.

The Internal Revenue Service’s (IRS) Large and Medium-Sized Business Division has launched a FIN 48 Initiative to “help taxpayers resolve any uncertain tax positions prior to the required date of adoption, the Service’s web site says. Since companies must record an aggregate adjustment to the accrued tax asset or liability based on the new rules in opening equity (retained earnings), “the Service recognizes that there are a myriad of reasons some taxpayers may want to resolve issues before booking that net aggregate adjustment.” The IRS will provide expedited resolution to taxpayers with required adoption dates of no later than April 1, 2007.

Some companies, including Pepsi Bottling Group, have said that they will adopt FIN 48 although the company said that the impact would not be reflected in per share value estimates. Such statements may be premature, however. Historically FASB has been willing to grant similar requests, Willens says “The chances of FASB extending this are about 100 percent,” he told CFO.com.

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