More changes may be on the way for the now infamous FIN 48, the guidelines for reporting uncertain tax positions. For the better part of three years, FIN 48 has seen a series of delays and adjustments that have sometimes had financial departments scrambling to understand the nuances.

A firm deadline for compliance was set last year, calling for all entities to adopt the standard as of the fiscal year beginning after December 31, 2008. However, as we approach the traditional tax season for that period, the IRS is already proposing changes to FIN 48 (for next year at the earliest). FIN 48 has been criticized in the past for its complexity and most notably its lack of clarity when it comes to pass-through and tax-exempt nonprofit entities. Given the deadline, private entities will have to get moving on FIN 48 compliance and stay attuned to the proposed adjustments.

The information reported under FIN 48 is meant to assist in the examination of tax returns by bringing to light areas of interest or magnitude that warrant further inquiry. The IRS is developing a schedule to be filed with corporate returns for taxpayers with assets greater than $10 million, which would require filers to provide a concise description of each uncertain tax position for which they or a related entity has recorded a reserve in financial statements; and the maximum amount of potential federal tax liability attributable to each uncertain tax position.

In addition to positions disclosed by taxpayers under FIN 48, the IRS changes would require that taxpayers disclose positions where no tax reserve was recorded because either it expects to litigate the position or it has determined that the IRS has an administrative practice or precedent not to examine the position.

The IRS proposal asks for descriptions of any uncertain tax positions to contain:

1. The Code sections potentially implicated by the position
2. A description of the taxable year or years to which the position relates
3. A statement that the position involves an item of income, gain, loss, deduction, or credit against tax
4. A statement that the position involves a permanent inclusion or exclusion of any item, the timing of that item, or both
5. A statement whether the position involves a determination of the value of any property or right
6. A statement whether the position involves a computation of basis.

Under the proposal, the IRS would also require that taxpayers indicate for each uncertain tax position the entire amount of federal income tax that would be due if the position were disallowed.

While the changes would not take effect during this filing season, the IRS is looking to expedite the process by requesting public comments by March 29, 2010. At that point, another chapter in the book on FIN 48 will go to press, and CPAs and finance departments will shift gears to keep pace.

This entry was posted on Tuesday, February 23rd, 2010 at 9:30 am and is filed under Accounting. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.