FASB Formally Defers FIN 48

In August 2005 I was a sole drafter of a response to Fin 48 on behalf of the NYSSCPA FASB Committee. At the time the Society was undergoing some disruptions in its response process due
to staff changes, so the response was never finalized because it got beyond the response deadline.

Below is the response concerning the proposed guidances related interest and penalties.

Issue 9 - Interest and Penalties: The Board concluded that if the relevant tax law requires payment of interest on underpayment of income taxes, accrural of interest should be based on the difference between the tax benefit recognized in the financial statements and the tax position in the period the interest is deemed to have been incurred. Similarly, if a statutory penalty would apply to a particular tax position, a liabiity for that penalty should be recognized in the period the penalty is deemed to have been incurred. Because classification of interest and penalties in the income statement was not considered when Statement 109 was issued, the Board's concluded it would not consider that issue in this proposed Interpretation. (Refer to paragraphs B37-B39 in the basis for conclusions.) Do you agree with the Board's conclusions about recognition, measurement, and classification of interest and penalties? If not, why not?

We agree with the Board's conclusions regarding recognition and measurement of interest and penalties. However, we believe that providing explicit guidance on classification of these amounts in profit and loss or operations should not be deferred pending "International Convergence". That guidance should also consider under what circumstances disclosures should highlight interest and penalties associated with income tax oriented matters. We believe providing guidance on classification and disclosures for tax related interest and penalties would be fairly straight-forward and devoid of controversy.

In day to day practice, prior to Fin 48, I always found it useful to have client financial statements highlight variances in a profit and loss statement attributed to extraordinary amounts incurred for interest and penalties related to income tax matters, as well as other types of taxes – think payroll, sales or others. If assessments associated with liabilities accrued for taxes are substantive it is likely disclosure on the face of the financial statements or in footnotes can be appropriate whether Fin 48 is deferred or not. Of course, that would include assessments from IRS and other taxing authority audits that have already occurred for which liability is accrued in the financial statements. It also likely that amounts accrued related to unsupportable or overturned tax positions should also be disclosed.

- Fred R. Goldstein

Does anyone know if the FASB has prepared a sample disclosure for the new requirements of FIN 48-3?

Your blog had realy timely post of this 11th hour - or maybe some would call it 364th day - development! One thing to add which for many people has flown below the radar screen is that the FSP also contains new disclosure requirements that are effective immediately (including for year-end 2008 reports) for eligible private companes availing themselves of the deferral. Many news reports have not focused on this aspect.