FASB Action Alerts

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November 2005 decisions on the uncertain tax positions project. Scope: Broad Scope, no specific issues deliberated, and defines tax position to include a decision to exclude reporting income in a tax return or the decision to classify a transaction, enterprise, or other position in a tax return as tax exempt.

consideration of the risk of examination is not appropriate.
November 2005 decisions on the uncertain tax positions project. Unit of Account: will not prescribe a specific unit of account to be used by an enterprise
November 2005 decisions on the uncertain tax positions project. Examination Risk: consideration of the risk of examination is not appropriate.
November 2005 decisions on the uncertain tax positions project. Initial Recognition and Measurement: model with a two-step approach, a more-likely-than-not recognition criterion, and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon ultimate settlement, will be adopted

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, based on the technical merits, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any

The second step is to measure the appropriate amount of the benefit to recognize. The amount of benefit to recognize will be measured as the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon ultimate settlement. The tax position should be derecognized when it is no longer more likely than not of being sustained.
November 2005 decisions on the uncertain tax positions project. Subsequent Recognition, Derecongnition, Measurement and Changes in Judgment: On subsequent recognition and measurement the largest amount that is greater than 50 percent likely of being realized at each reporting date will represent managementâ€™s best estimate given the information available at the reporting date, even though the outcome of the tax position is not absolute or final. Additionally, subsequent recognition, derecognition, and measurement should be based on new information

The guidance in APB Opinion No. 28, Interim Financial Reporting, and FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods, will apply in accounting for changes in judgments about the recognition and measurement of tax benefits during interim periods, unless other United States Generally Accepted Accounting Principles (U.S. GAAP) apply to the situation.
in November 2005, the Board redeliberated its decisions on the uncertain tax positions project. Interest and Penalties: liability for interest or penalties or both will be recognized as deemed to be incurred based on the provisions of the tax law

The amount of interest expense recognized will be based on the difference between the amount recognized in the financial statements and the benefit recognized in the tax return. That estimate will not consider examination risk.

The final Interpretation will not provide guidance on the classification of interest or penalties in the income statement. Enterprises will be required to:

a. Establish a policy for classification of such amounts

b. Disclose that policy in the summary of significant accounting policies

c. Disclose the amount of interest or penalties or both recognized in the financial statements.
in November 2005, the Board redeliberated its decisions on the uncertain tax positions project. Classification: The liability recognized pursuant to the final Interpretation will be classified as a current liability to the extent that cash payment is expected to occur within 12 months or the operating cycle, if longer.

The final Interpretation will not address classification and presentation issues that are currently addressed in Issue 93-7 regarding uncertainties in income taxes that predate or result from a purchase business combination in the final Interpretation. Those issues will be addressed in the Boardâ€™s joint project with the IASB on business combinations.
in November 2005, the Board redeliberated its decisions on the uncertain tax positions project. Disclosures: The final Interpretation will amend FASB Statement No. 5, Accounting for Contingencies, to exclude contingencies relating to income taxes, and require the following disclosures as part of the final Interpretation:

a. A tabular reconciliation of the beginning and ending amount of unrecognized tax benefits in a manner similar to that prescribed in other recent guidance that addresses estimates with significant uncertainty

b. For items in which it is reasonably possible that the estimate of the realized tax benefit for the tax uncertainty will significantly change in the next 12 months:
1. The nature of the uncertainty
2. The nature of the event that could occur in the next 12 months that would cause the change
3.An estimate of the range of the reasonably possible change or a statement that an estimate of the change cannot be made

c. A description of open tax years by major tax jurisdictions.

The final Interpretation will require the following transition disclosures:

a. nature of the change in accounting principle

b. The cumulative effect of the change on retained earnings in the statement of financial position as of the date of adoption.
in November 2005, the Board redeliberated its decisions on the uncertain tax positions project. Transition and Effective Date: The change in net assets as a result of applying the provisions of the final Interpretation will be considered a change in accounting principle with the cumulative effect of the change treated as an offsetting adjustment to the opening balance of retained earnings in the period of transition.

The final Interpretation will be effective as of the beginning of the first annual period beginning after December 15, 2006. Earlier application is encouraged provided the enterprise has not publicly issued financial statements for the period of initial application.
in November 2005, the Board redeliberated its decisions on the uncertain tax positions project. Other: The final Interpretation will use the administrative practices and precedents concept. Administrative practices and precedents apply where there is broad understanding among taxpayers, tax practitioners, and taxing authorities that the authority will not take issue with a position, presuming the taxing authority has access to all the relevant information.

The final Interpretation will not provide any differential recognition and measurement, disclosure (other than that which currently exists in Statement 109), or transition guidance for nonpublic enterprises, including not-for-profit entities.

The Board directed the staff to proceed to a draft of a final Interpretation for vote by written ballot.

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