Closing the loop on Uncertain Tax Positions

 Actions to Consider on Uncertain Tax Positions

So, if you have been reading all week, this posting will make sense. If you have not read all week go down to the Tuesday post and read back through the week. Since many readers of this blog work within the benefits department of a company, are consultants or attorneys, they may not follow financial reporting standards that are not aimed specifically at compensation or benefit considerations. FASB Interpretation 48 is a general pronouncement regarding the need to measure, report and disclose uncertain tax positions. Public companies are already dealing with this. But the standard applies to any income tax position and any enterprise – taxable or tax-exempt, that might owe income taxes. If a tax return position does not meet the more likely than not standard, the company must measure the potential impact on their tax liability and adjust their financial statements accordingly. There is also additional financial statement disclosures required relative to this standard. This standard applies to financial reporting periods beginning after December 15, 2006. Measurement and reporting applies to uncertain tax positions taken in any open tax year.

The good news is that the required disclosure is not specific by item. The bad news is that the auditor needs to examine each significant uncertain tax position and draw a conclusion regarding the certainty of success on that position. Auditor’s work papers are not subject to privilege. So the action point is to anticipate these issues and be prepared or help your clients get prepared to defend those tax positions that might otherwise be considered uncertain. If this work is done now, well in advance of when the auditor shows up, everyone is likely to be a lot more comfortable through the implementation of this new standard.