FASB Weighs One-year Delay for FIN 48

The Financial Accounting Standards Board will consider a one-year delay in the implementation of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, at its January 17 meeting.

Issued last July, FIN 48 is now effective for fiscal years beginning after December 15, 2006. The possible delay may have been prompted by outcries from finance departments across the country. Last month, CFOs and tax directors began inundating FASB with unsolicited comment letters (236 letters, at last count) asking for more time to implement the new interpretation. Finance chiefs such as D. Scott Davis of UPS and Peter Currie of Nortel Networks urged the board to push back the effective date until fiscal years beginning after December 15, 2007.

FIN 48, an interpretation of FASB Statement No. 109, Accounting for Income Taxes, aims to improve comparisons between companies by providing consistent recognition thresholds and measurements. Under the new interpretation, a company would be able to book a tax benefit only if it is "more likely than not" to stand up to an audit. Further, the company must assume that every uncertain tax position will be examined by the Internal Revenue Service. In other words, the company must calculate only the possibility that its tax position will pass muster with the IRS — not the odds that the agency will find it in the first place.

In their comment letters to FASB, executives cited unresolved procedural and documentation "challenges" posed by the interpretation as their main concern. Some of those challenges include the application of materiality standards and the proper level of documentation, noted the Manufacturers Alliance, which added that even the major audit firms have conflicting views on these issues.

Stephen Roberts, director of income tax at PetSmart, wrote that "significant pressures exist to be overly conservative in the implementation of FIN 48, even at the expense of common sense." That pressure isn't likely to lead to useful or understandable financial statements, added Roberts.

There is much to be said for the executives' request for a delay, remarked Robert Willens, a tax and accounting analyst at Lehman Brothers. It's likely that companies didn't start examining the interpretation until recently, and when they did, the amount of data to review was probably "overwhelming," said Willens. He suggested, however, that even though companies may have assembled the necessary information in the process of preparing their tax returns, a greater concern may be that they will compromise their position with the Internal Revenue Service. "There is a lot of fear the IRS will use this disclosure to tailor and fine-tune their audits," said Willens.

Raymond Zaniewski, tax reporting director at Monster Worldwide, may have summed up the general feeling of his peers with his comment (emphasis in original): "Can you possibly fathom any tax audit of a large multinational company being completed in a period of less than a year for one jurisdiction, let alone every jurisdiction (federal, state and international) in which we are filing and those in which we should be filing, for all open years, and all being conducted concurrently??"

As for the prospects of a delay in the effective date of FIN 48, Willens observed that historically, the board has acceded to similar requests. "The chances of FASB extending this are about 100 percent," he predicted.