Recent FASB Release Addressing the Accounting Treatment of Uncertain Income Tax Positions Is Likely to Increase the Need for Tax Opinions Supporting Such Positions

The recent release of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), is likely to result in increased requests by accountants and enterprises preparing financial statements for legal opinions in connection with uncertain income tax positions that are to be reflected in such financial statements.

FIN 48 interprets FASB Statement No. 109 (FAS 109) and sets forth standards for determining the recognition and measurement of income tax positions for financial reporting purposes. FIN 48 generally provides that an income tax position is to be recognized only if the position is more likely than not to be sustained, assuming the position is audited and taking into account appeals and litigation processes that may follow? otherwise, the full tax liability must be accrued even though a different position may be claimed on the enterprise’s tax return. Further, the amount of the tax position may not exceed the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement with a taxing authority, taking into account for this purpose the enterprise’s experience in resolving similar disputes with the taxing authority.

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