The Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards (SFAS) No. 109 sets forth the financial accounting and reporting standards for the effects of income taxes resulting from an entity’s activities during the current and previous tax years. FASB Interpretation (FIN) 48 (“Accounting for Uncertainty in Income Taxes”) directs how SFAS No. 109 applies by setting a threshold condition that a tax position taken by an entity must satisfy before any part of the benefit of that position may be recognized in the entity’s financial statement.

Under FIN 48, tax benefits resulting from uncertain tax positions that reduce an entity’s current or future income-tax liability may be reported in financial statements only to the extent each such benefit (such as a deduction or credit) is recognized, measured, and disclosed according to a process outlined in FIN 48. FIN 48 generally applies to all entities, public and private.

Exemptions for Nonpublic Entities

The provisions of a new Accounting Standards Update (ASU 2009-06) exempt private companies from certain aspects of a previously released FASB requirement, which mandates the provision of a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of a period. Additionally, private entities are also exempted from a requirement that mandates the disclosure of the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rates.

Private companies should be mindful, however, that they are still subject to certain other required disclosures, such as the provision of the total amount of tax-related interest and penalties recognized on their balance sheets.

FIN 48 Implementation Finalized

FIN 48 generally applies to all entities and was effective for fiscal years beginning after December 15, 2006. In February 2008, however, the FASB deferred the effective date for most nonpublic enterprises to annual financial statements for fiscal years beginning after December 15, 2007. Then, in December 2008, the FASB granted another one-year deferral for all nonpublic entities until fiscal years beginning after December 15, 2008 (calendar years ending December 31, 2009, or later). Public entities are still subject to the earlier implementation date.

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