11/5/2012
Accounting for Income Tax Uncertainty: ASC 740-10 (FIN 48) Update
Advanced Tax Institute November 5, 2012
Phone: (703) 287-5959 ♦ Toll Free: (800) 832-3008 ♦ Fax: (703) 287-5999 ♦ Web: www.SCandH.com
Welcome
Tsvetelina Petrova Boyd Senior Tax Manager, TAS McLane, VA
[email protected] Phone: (703) 287-5979
Phone: (703) 287-5959 ♦ Toll Free: (800) 832-3008 ♦ Fax: (703) 287-5999 ♦ Web: www.SCandH.com
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The information contained in this document is for discussion purposes only. This document was not intended or written to be used, and cannot be used by any client or any other person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party the matters addressed within
Phone: (703) 287-5959 ♦ Toll Free: (800) 832-3008 ♦ Fax: (703) 287-5999 ♦ Web: www.SCandH.com
Agenda – ASC 740-10 (FIN 48)
Background and overview
Income tax uncertainties basics
Issues to consider
Other Developments
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Background and Overview
Background and overview
FASB interpretation no. (FIN 48) Accounting for Uncertainty in Income Taxes, issued in June of 2006, later codified in Accounting Standards Codification (ASC) topic 740, Income Taxes. Effective Dates:
Public companies - fiscal years beginning after December 15, 2006
Non-public enterprises - fiscal years beginning after December 15, 2008
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Background and overview Purpose:
Clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements – more likely than not (MLTN) criteria
Prescribes a financial statement recognition threshold and measurement criteria for income tax positions
Provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition
Does not require a specific manner for the analysis of recognition and measurement
Note: FAS 109 (pre-codification and issuance of the interpretation) did not prescribe a recognition threshold or measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return.
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Income Tax Uncertainties
Basics
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Income Tax Uncertainties Basics
Scope - applies to all income tax positions
Unit of account – a matter of judgment
Two-step process: 1. Recognition – more likely than not chance of being sustained based on the technical merits. 2. Measurement – largest amount of tax benefit that is greater than 50% likely of being realized.
Interest and penalties
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Income Tax Uncertainties Basics
Recognition in subsequent periods -
Uncertain tax positions are reassessed at each balance sheet date
The tax benefit of the tax position is recognized when any one of the following conditions is met: -
The MLTN recognition threshold is met by the reporting date
-
The tax position is effectively settled through examination, negotiation or litigation
-
The statute of limitations has expired
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Income Tax Uncertainties Basics
Subsequent de-recognition or change in measurement: -
Derecognize a previously recognized tax position when it is no longer “more likely than not”
-
Change in measurement should also be reflected in the period that such change occurs
Change in Judgment - new information vs. new evaluation
Classification: -
Reduction in deferred tax asset (DTA) or
-
Current or non-current liability
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Issues to consider
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Potential Financial statement implications
Change in tax accounting method due to a change in tax law -
Considered in the period in which enacted
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Impact determined for the period the change is effective
Changes in tax rates (federal, state, local, foreign) -
Considered in the period enacted
-
Many provisions due to expire at the end of 12/31/2012 may have significant impact
Potential Financial statement implications
Other Legislative changes: -
Changes to NOL carry forwards, other limitations
-
Interactions with Valuation allowance assessment
Judicial precedents
Increased focus on international operations: -
HIRE Act
-
FATCA Act
-
Dual Consolidated loss filings
-
Section 956 and 951 inclusion
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Other Developments
Schedule UTP
An applicable corporation must report a federal tax position on schedule UTP when two conditions are satisfied: 1.
The tax position has been taken on its U.S. federal income tax return for the current tax year or for a prior tax year.
2.
Either the corporation or related party has recorded a tax reserve for that tax position in audited financial statements. Or The tax reserve was not recorded to the financial statements because the corporation expects to litigate the tax position.
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Schedule UTP
The filing of schedule UTP is phased in over 5 years:
2010-2011: Assets equal to or greater than $100 million 2012-2013: Assets equal to or greater than $50 million 2014: Assets equal to or greater than $10 million
Other Developments
Financial Accounting Foundation (FAF) “post-implementation” review report Full report available at: www.accountingfoundation.org
Private Company Council (PCC)
Ferarro 500 – Uncertain Tax Positions summary report of Fortune 500 companies -
$187.5 billion in reserves at 12/31/2011
Full report available at: http://www.tax-whistleblower.com/ferraro500/
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Q&A?
Phone: (703) 287-5959 ♦ Toll Free: (800) 832-3008 ♦ Fax: (703) 287-5999 ♦ Web: www.SCandH.com
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