FIN 48 Compliance

The Financial Accounting Standards Board issued FIN 48 in June 2006 to address uncertain tax positions a company anticipates taking on tax return. Interpretation No. 48, “Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement 109,” applies to all income tax positions, effective December 15, 2006.

Companies with a calendar year-end will be required to record the financial statement impact of FIN 48 by December 31, 2007 but should analyze the effect of each quarter’s statements as well. FIN 48 is a two-step process – recognition and measurement – for each unit of account that constitutes an individual tax position. Tax benefits are recognized when the probability of a favorable result, based on the technical merits of the position after sustained examination, is more than 50 percent probable.

A company must fully record tax financials if there is less than a 50 percent likelihood that benefit will be realized. Highly certain tax positions, where there is great confidence that recognition of a particular item is more than 50 percent, does not require a FIN 48 adjustment. Accordingly, transfer pricing is generally not considered a highly certain tax position.

Once recognition of tax positions occur under FIN 48 analysis, the focus shifts to the second phase of measurement. This requires a comprehensive analysis of transactions in the United States and foreign countries with related parties for all tax years still applicable under the statute of limitations.

The measurement process can be tedious, and this is where is counts most to have trusted financial advisors at your behest. DKC International can support your accounting or tax staff in compliance with the new FIN 48 requirements. We can provide the resources to review your FIN 48 disclosures and prepare any related documents.