TEI business tax executives indicated that their companies' internal staffs are now adequately trained and resourced for FIN 48 and they do not expect to outsource FIN 48 tasks and experience exorbitant compliance costs, as they did with Sarbanes-Oxley.

FIN 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109," requires companies to examine and document their tax positions, evaluating whether uncertain income tax positions are more likely than not to withstand an IRS challenge. Earlier this year, TEI called on the Financial Accounting Standards Board to postpone the rule, which is effective for fiscal years beginning after Dec. 15, 2006. (View FIN 48 status on FASB.org.)

While ready for FIN 48 compliance, the TEI panel expressed that one of their pressing needs is to see how other companies are handling new compliance issues. Corporate tax executives in the group indicated that to be entirely confident in the way they are making FIN 48 disclosures, their companies examine recent Securities and Exchange Commission filings to see how other companies are making FIN 48 disclosures and use workpapers for their own filings.

"Increasingly, tax executives are faced with meeting regulatory and compliance requirements, while continuing to provide value-added strategic services to the corporation," said Timothy McCormally, TEI executive director. "The best way for tax executives to handle a new area like FIN 48 is to make sure their staffs are fully trained, and up to date on the latest guidance. They can do this by networking with peers on best practices and by looking at other company filings."

Regarding training, Linda Scheffel, Thomson Tax & Accounting vice president and publisher for Research and Guidance said, "A company must have internal staff capable of making the key judgments required by FIN 48 to determine whether the tax benefits reported on the income tax return would more likely than not be sustained upon examination and to measure the greatest amount of tax benefit that would more likely than not be realized upon settlement. In addition, internal staff must be capable of identifying tax positions taken that may require accounting under FIN 48. An error in judgment could be considered a material weakness if it resulted from a lack of trained personnel."

Scheffel said FIN 48 compliance poses new and evolving audit challenges. For example, an IRS Chief Counsel legal memo concludes that documents produced by a taxpayer and/or its auditors to substantiate uncertain tax positions to comply with FIN 48 are treated as tax accrual workpapers (TAWs).

"Thomson Tax & Accounting tax experts believe this is a pro-taxpayer development because IRS generally has followed a policy of restraint in requesting TAWs. However, this policy may change. An IRS Large and Mid-size Business Division (LMSB) memorandum says this policy is under review to ensure it is still appropriate in today's environment."

Additionally, Scheffel said FIN 48 disclosures reported in quarterly and/or annual financial statements and other public documents "are not subject to IRS's policy of restraint on TAWs. In fact, a recent LMSB Field Guide tells auditors that tax footnotes included in financial statements, including FIN 48 disclosures, should be carefully reviewed and analyzed as part of the audit planning process."

TEI represents 7,000 business tax executives in North America. Thomson Tax & Accounting is a unit of the Thomson Corp.

See also: FIN 48: Accounting for Uncertain Tax Positions (SmartPros course catalog)