FASB is coming up on the launch of its “codification” effort, as it streamlines rules into more of a single-source organization.  The initiative is designed to make guidelines more navigable, and while it will make things easier in the long run there undoubtedly will be some short term pain.

As CFO magazine points out in their recent piece on the new FASB Code:

The debut of the online filing cabinet promises to streamline GAAP by grouping all rules into roughly 90 topics, and should draw a sharper distinction between authoritative and non-authoritative GAAP. However, less than three weeks away from the launch, there are still many unknowns, including whether or not the FASB’s promise that GAAP is not changing will turn out to be true.

With questions still swirling, MFA invites those trying to get ahead of the issue to download more background on the FASB accounting standards codification or for a higher level look, register for this week’s webinar on the purpose of the new codification and the best way to make the transition.

We’ve been keeping close track of the Massachusetts Privacy Law, with some recent comments specifically about the compliance work nonprofits will need to perform.  Halfway to the deadline, now, and we encourage organizations of all types to do a quick check of where they stand, as the penalties for noncompliance will be steep.

To get more information, you can also check out this archived MFA webinar.

Interesting focus lately on a couple of areas that relate to M&A in this environment; companies are getting more creative about deals and thereby run the risk of triggering tax issues that weren’t as prevalent in the bull market days. We wrote about this last week in TheDeal.com (check out the article called “Dealing with the Code“), and it seems to be top of mind in other areas as well.

Most recognized is the use of net operating losses (NOLs) to offset taxes and make deals more attractive; the inherent value of NOLs is earning some attention as companies take major steps to protect them.  This is outlined in TheDeal.com article but also highlighted in a recent piece from CFO Magazine about GM’s bankruptcy plans.  As the magazine writes,

the IRS substantially curbs the amount of NOLs that can be used when there’s a change of ownership. In that way, the government prevents corporations from buying loss companies just to latch on to NOLs for their accompanying tax benefits…[but] bailout plans can’t limit the taxable income of companies benefiting from them.

The historically difficult environment is giving rise to exceptions like this and to opportunities for acquiring companies to get creative with the way they structure deals.  Dealflow might be slow, but it’s still moving and knowing how tax issues can help or hurt transactions will be key as we close in on the latter half of 2009.

The International Accounting Standards Board made another attempt to bring order to the global uncertainty around fair value.  This serves as one more step to closing the distance between GAAP and IFRS, and according to this article from Accounting Today the guidance defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,” or the exit price.

I noted in March that Mary Schapiro may be looking to slow the convergence process; even so, agreement on fair value continues to be a dominant point of discussion.

Interesting red flag thrown up by CFO magazine in its recent article on the new administration’s multinational tax plan.  Quoting from the story, “President Obama is pushing Congress to rework tax rules affecting U.S. multinational corporations so that more revenue will flow back into the United States - about $210 billion over the next 10 years, according to the Treasury Department.”

This will be accomplished in large part through the expense-deferral rule, which will restrict deferring tax payments on cross-border profits.

The outlook sheds new light on the international tax story, which we checked in on in this MFA Business Insights post from last month.  We like to keep an eye on these global tax themes, as the opportunities to strengthen business by conducting operations overseas continue to have great appeal.

In the wake of the highly publicized stress tests on U.S. banks, there is no shortage of commentary on concerns about credit and the environment in which banks and borrowers are operating today. Banks are in a tenuous position as they balance their role – to provide and protect capital – with the risk of performing that very function.

We’re finding that the process of credit risk examination is evolving in front of our eyes, as lenders are putting a high priority on catching warning signs of default early on. By improving the quality and interpretation of information used to determine risk, they are changing the way they approach due diligence on loans.

Lenders’ motivation is clear: even in this difficult economy, they eventually have to find a way to be comfortable lending. Yet loan delinquencies are higher than ever, as Reuters points out in this April story, “National Consumer Loan Delinquencies Highest on Record.”  The American Bankers Association notes in the article that “the fourth-quarter [delinquency] rate was the highest since it began tracking the data in 1974, with delinquencies rising in nearly every category. It said these credit trends are unlikely to improve before 2010.”

Banks have in effect woken up to the fact that the financial storm is well upon them and a greater focus on due diligence is necessary. That doesn’t mean “not lending,” it means “smart lending,” and we are encouraged to see a renewed focus on extracting and interpreting information that flags symptomatic default issues early on.

Nonprofits should be ready to adjust this year to new guidelines around FIN 48, a regulation that calls for improved disclosure of uncertain tax positions.  Discussion has been going on for years about how to best implement the changes; the original FIN 48 was proposed for 2006, and after several years of deferments it is now upon us for fiscal years beginning after December 15, 2008.

FIN 48 got plenty of attention in the for-profit world, but nonprofits are impacted as well.  As Accounting Today wrote earlier this year, “Many large public companies have adopted it, but smaller organizations, including pass-through entities such as S corporations and partnerships, as well as nonprofits, were concerned about how to apply the stringent requirements.”

FIN 48 is a complex piece of work, which explains the years of delay in its implementation.  The standard requires new disclosures in all GAAP financial statements, and even more burdensome, it calls for nonprofits to determine unrecognized tax benefits resulting from an overall evaluation of their tax positions.  These positions may include items such as:

- Tax return filing requirements in other jurisdictions, including states, cities and foreign countries

- Tax positions taken in determining how much revenue qualifies as Unrelated Business Taxable Income (UBTI) and is therefore taxable

- Tax positions taken to allocate expenses to offset revenue that is identified as UBTI

As outlined in this MFA tax alert from 2008, nonprofits should take a few steps this year to comply with FIN 48 (Note: the linked tax alert states that FIN 48 is effective for tax year 2008, but as noted above that has since been deferred to tax year 2009).  They should perform an overall evaluation of tax positions taken or not taken, speak with their audit team to ensure expectations are understood, and consult their tax advisors to ensure all uncertain tax positions have been identified and steps drafted.

An interesting look ahead, flagged for us by our peers at TaxProf Blog: Mihir A. Desai (Harvard Business School) has posted a new paper on evolving tax policy for companies operating overseas. Check out Securing Jobs or the New Protectionism?: Taxing the Overseas Activities of Multinational Firms; the abstract reads:

Tax policy toward American multinational firms would appear to be approaching a crossroads. The presumed linkages between domestic employment conditions and the growth of foreign operations by American firms have led to calls for increased taxation on foreign operations - the so-called end to tax breaks for companies that ship our jobs overseas. At the same time, the current tax regime employed by the U.S. is being abandoned by the two remaining large capital exporters - the UK and Japan - that had maintained similar regimes. The conundrum facing policymakers is how to reconcile mounting pressures for increased tax burdens on foreign activity with the increasing exceptionalism of American policy. This paper address these questions by analyzing the available evidence on two related claims - i) that the current U.S. policy of deferring taxation of foreign profits represents a subsidy to American firms and ii) that activity abroad by multinational firms represents the displacement of activity that would have otherwise been undertaken at home. These two tempting claims are found to have limited, if any, systematic support. Instead, modern welfare norms that capture the nature of multinational firm activity recommend a move toward not taxing the foreign activities of American firms, rather than taxing them more heavily. Similarly, the weight of the empirical evidence is that foreign activity is a complement, rather than a substitute, for domestic activity. Much as the formulation of trade policy requires resisting the tempting logic of protectionism, the appropriate taxation of multinational firms requires a similar fortitude.

A reminder that May is fast approaching, and with it comes the deadline for companies to apply to be considered for the Massachusetts Life Sciences Tax Incentive Program. That date is May 15, and qualifying companies will benefit from the $1 billion investment Massachusetts is making in life sciences over 10 years.

Specific tax incentives include an Investment Tax Credit for 10% of the cost of qualifying property, of which 90% may be refundable, as well as new credits for certain R&D, changes to existing R&D credits (again, of which 90% may be refundable) and an extension of the Net Operating Loss carryforward from 5 to 15 years.

We outline these incentives and more in this Tax Alert, and of course feel free to comment or contact us with questions.

April is National Financial Literacy Month, bringing into focus the major concern we have in this country around understanding finance. With that in mind and the April 15^th tax deadline approaching, this is a good time of year to put together a plan around finances, both for the short and long term…as they say, “if you fail to plan, plan to fail.”

In fact, it has been estimated that two out of three American households will probably fail to realize one or more of their major life goals due to a failure to effectively establish (and implement) a comprehensive financial plan.  That is a statistic that simply shouldn’t be – it’s not about how much families have in the bank, but about what is done with the money they do have.

The American Institute of Certified Public Accountants (AICPA) has designed a website to assist individuals with their financial decision-making and it includes information that encompasses virtually every critical financial stage of your life – go to www.360financialliteracy.org and click on “Life Stages” for additional information, or of course leave a comment if you have any questions for us at MFA’s Business Insights.