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.