NORTH BAY - As of 2006, public companies were required to comply with the Accounting for Uncertainty in Income Taxes rule, or FIN 48. The Financial Accounting Standards Board had deferred compliance for private companies, but as of Sept. 15 they too will be required to follow it.
The rule requires the recognition and measurement of all tax positions taken or expected to be taken by U.S. companies. A company must go through and analyze the tax positions it is taking or is going to be taking.
FIN 48 is intended to deal with non-standard accounting practices that occur because of the subjective interpretation of the tax law. By providing a consistent approach and criteria for the evaluation, recognition and measurement of the tax benefit related to tax positions. As a result, tax departments must document and track tax positions in a new, more detailed manner, which requires process changes, new controls and new reporting.
With the adoption of FIN 48, accounting firms will also have to train employees to follow guidelines. This will create more work for them as well as cost clients more money.
Leonard LaBranche, partner at accounting firm G&J Seiberlich in Napa, said they will look to the public companies that have had to comply with this for several years now for guidance.
However, because private companies are essentially filing financial statements for their banks, industry experts believe the companies may request to opt out of those statements.
"Clients will go to the bank and ask for a departure from GAAP," said Mr. LaBranche.
To be in compliance with FIN 48, businesses will be required to have a 50 percent or better chance of passing an audit. Currently, it has to be "more than likely."
FIN 48 is setting different criteria for recognition since companies will need to take into consideration what would happen if they are taken to tax court.
In this area, said Mr. LaBranche, wineries will be impacted greatly because of last-in, first-out (LIFO) accounting practices. He said that compliance will be more difficult for wineries than other businesses.
Issues businesses need to watch out for when filing are how they will file between states, which states need to be filed in, how they are depreciating and why.