CFOs of private companies should soon get clearer guidance concerning how to report their companies’ income taxes. The Private Company Council (PCC), created in May by the Financial Accounting Foundation (FAF), plans to make income-tax uncertainty one of the first items on its agenda by tackling Financial Accounting Standards Board Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” head on.

FIN 48, which dates back to 2006, received a barrage of criticism from private companies trying to adhere to a more formal set of income-tax reporting standards. Before FIN 48 was issued, companies’ tax positions were often recognized in the financial statements on a “best estimate” basis. But FIN 48 provided more fixed requirements to help FASB better gauge whether or not a company should be claiming a reduction in its retained earnings, for instance. Another concern of the standard-setter that led it to frame FIN 48 was to provide regulators with more ability to determine if firms have engaged in illegal tax-sheltered transactions.

Billy Atkinson, newly appointed chairman of the PCC and former chairman of the National Association of State Boards of Accountancy and the Texas State Board of Public Accountancy, said on a press call last week that the group will look at tax uncertainty right out of the gate because it’s starting with the issues that are most pressing for private companies. “FIN 48, ‘Accounting for Uncertainty in Income Taxes,’ as you know, that has been a subject of concern for private companies.”

The top managers of recently merged private companies or ones with multinational operations, in particular, have found it challenging to comply with FIN 48. Recognizing this, FASB deferred its effective date for private companies a number of times. But after the end of 2008, privately held firms that report in accordance with generally accepted accounting principles (GAAP) were required to comply with the standard. Public companies have had to comply since 2006.

Along with Atkinson, the FAF’s board of trustees last week named nine other members to the PCC, including two CFOs: George Beckwith, vice president and CFO of National Gypsum Co., and Mark Ellis, CFO of PetCareRx Inc. in Chappaqua, New York.

Formed by the FAF (which is also FASB’s parent organization) to improve private companies’ financial reporting, the council is charged with finding out whether exceptions or changes to existing nongovernmental U.S. GAAP are needed to address the needs of users of private-company financial statements. Second, the PCC advises FASB on private-company treatment in items on FASB’s agenda for technical changes in the standards.

But improving the standard-setting process for private companies has been “a long time at work,” admitted Atkinson. Although the PCC is separate from FASB, it will retain close ties to the standards board. Daryl Buck, a FASB member, will serve as the official liaison to the PCC, which will replace FASB’s Private Company Financial Reporting Committee (PCFRC), created in 2006.

“We will not formally disband the group [PCFRC] until year-end, just to ensure that the FASB has the input that it needs as the PCC is getting up and running,” said Terri Polley, president and CEO of FAF, on the call.

FASB currently has a staff paper out for public comment on a decision-making framework it developed for private-company financial reporting, concerning how to determine when financial-reporting guidelines for private and public companies should differ. FASB, which plans to share feedback on the paper with the PCC, is expecting to have comments on that framework back by the first meeting of the PCC in the fourth quarter, according to FASB chairman Leslie Seidman.

For its part, FASB, which has been criticized for its approach to private companies by the American Institute of Certified Public Accountants, has a lot invested in the success of the PCC and its mission. FASB “will provide the necessary support in terms of staffing and other resources so that we together can be as effective as possible in achieving our mission,” says Seidman.

Besides income-tax uncertainty, the PCC will also focus on a number of other issues that are a big concern for private companies: fair-value accounting, especially how the purchase or sale of an asset should be reported; FIN 46(R), “Consolidation of Variable Interest Entities,” which includes an accounting model factoring in economic risk and rewards into the reporting of such consolidations; the complexity of interest-rate swaps and other derivatives; the accounting for warrants; and the identification of intangibles.

Other council members include Steven Brown, vice president of US Bank; Jeffery Bryan, partner, professional standards group of Dixon Hughes Goodman LLP; Thomas Groskopf, director and owner of Barnes, Dennig & Co.; Neville Grusd, president of Merchant Financial Corp.; Carelton Olmanson, managing principal of GMB Mezzanine Capital; Diane Rubin, partner at Novogradac & Co.; and Lawrence Weinstock, vice president for finance at Mana Products Inc. of Long Island City, New York.

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