On October 15, 2008, FASB voted to further delay the effective date of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), for private companies.
Those that haven't already implemented the new rules can accordingly now postpone compliance until periods beginning after December 15, 2008. For many private companies, this reprieve means that FIN 48 will affect only their calendar year 2009 and later financial statements.
FIN 48 requires companies to review all of their federal and state tax positions — including decisions not to file in a particular state — and to determine whether the positions would "more likely than not" withstand a challenge by the Internal Revenue Service or a state tax authority.
If a position fails the more-likely-than-not test, the corresponding tax benefit isn't recognized in the company's financial statements. For positions that meet the test, FIN 48 outlines a complex process for determining the portion of the benefit that should be recognized. In either case, the company must establish reserves for the portion of the tax benefit that isn't recognized and make financial statement disclosures about uncertain tax positions.
When making its decision, FASB took into account that pass-through entities — such as partnerships, S corporations and limited liability companies (LLCs) — haven't been adequately defined in FIN 48. In fact, partnerships and LLCs can have multiple pass-through entities, thus making it difficult to determine which entity is liable for taxes. FASB expects to finalize and issue an FASB Staff Position that offers guidance for pass-through entities and provides amendments to the existing disclosure requirements for nonpublic entities in the first quarter of 2009.
Although FASB's decision is good news for private companies, it doesn't mean they can put off thinking about FIN 48 for a year. These companies should start examining their situations soon to evaluate the potential impact of FIN 48 on their financial statements and to ensure that procedures are in place to gather the information FIN 48 will require.
If you have any questions about how FIN 48 affects your company and the preparation of its financial statements, please contact Jeff Ring at 207-541-2318 or by email at jring@bdmp.com. We would be glad to review your situation and help you prepare any information required to comply with this new accounting rule.