FIN 48 Compliance and Review

Bottom Line Impact

Financial Accounting Standards Board Interpretation 48, Accounting for Uncertainty in Income Taxes ("FIN 48") is an accounting pronouncement that applies to every entity that is required to prepare its financials under United States Generally Accepted Accounting Principles ("U.S. GAAP"). FIN 48 has been effective for publicly-traded companies since 2007. Beginning in 2009, FIN 48 will apply to privately-held companies as well.

Under FIN 48, companies are required to identify and evaluate each and every uncertain income tax position. If done properly, this analysis (along with other tax accrual workpapers) could provide a roadmap for taxing authorities to successfully challenge positions taken by the company on its tax returns. The issue of whether taxing authorities are entitled to review a company's tax accrual workpapers has been subject of recent litigation. 

Preserving the confidentiality of tax accrual workpapers is an extremely fact-sensitive analysis. It is important to address such issues prior to the onset of litigation of the underlying uncertain tax position. Blank Rome has proactively assisted its clients by:

  1. Recommending and implementing internal protocols to safeguard sensitive documents;
  2. Requesting letter rulings from taxing authorities to clarify otherwise uncertain tax positions;
  3. Submitting voluntary disclosure applications to mitigate FIN 48 exposure items; and
  4. Drafting legal opinions evaluating and supporting the merits of the Company's tax positions.