TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, May 27, 2007

NY Times & WSJ on FIN 48 and Disclosure of Potential Tax Liabilities

New York TimesRisky Bets on Winning Tax Fights, by Floyd Norris:

Death may still be certain, but taxes are something else entirely. Disclosures are now appearing in quarterly reports from American public companies, showing that companies are betting billions on tax breaks that may not work out. The disclosures also show that some companies keep fighting over taxes for decades. While most companies say they have cleaned up tax disputes from the 1990s and even up to 2002 or 2003, others are far slower. Some are still fighting over audits that began in the 1980s — leaving the companies at risk of paying billions in taxes and penalties. ...

The new rule from the Financial Accounting Standards Board is supposed to make all companies account for taxes in the same way, something that has not happened in the past, when accounting rules were vague and practices seem to have varied greatly.

Wall Street JournalLifting the Veil on Tax Risk: New Accounting Rule Lays Bare a Firm's Liability if Transaction Is Later Disallowed by the IRS, by Jesse Drucker:

Hundreds of companies could be on the hook to the IRS and other authorities for tens of billions of dollars in back taxes due to transactions they believe could be challenged, newly required regulatory disclosures show. Investors are getting a first peek into one aspect of the world of corporate taxes, thanks to a new accounting rule that took effect in January.

The rule, known as FIN 48, forces companies to better disclose how much they have set aside, or reserved for financial-reporting purposes, to pay governments in case tax-saving transactions are successfully challenged by taxing authorities.

In the past, companies had to reveal little information about transactions that could face some risk in an audit by the IRS or other government entities. Now, companies are being required to disclose the amount they have put into tax reserves, along with other potentially challengeable amounts related to past tax benefits. These sums are being disclosed as a liability for "unrecognized tax benefits" in quarterly 10-Q reports filed with the SEC. Most of the first such disclosures have been filed in the past few weeks.

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