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On October 15, 2008, the FASB Board redeliberated the scope of the proposed deferral of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, for certain nonpublic entities. The Board previously had decided that the deferral should be limited to only pass-through entities.

The Board decided to issue a proposed FASB Staff Position (FSP) to defer the Interpretation for all nonpublic entities until fiscal years beginning after December 15, 2008, rather than limiting the deferral to pass-through entities only.

This proposed FSP will have a 30-day comment period. The Board will then subsequently issue a separate FSP that will provide guidance for pass-through entities and provide amendments to the existing disclosure requirements for nonpublic entities.

The Board expects to finalize and issue this FSP in the first quarter of 2009.

FIN 48 requires companies that prepare their financial statements according to Generally Accepted Accounting Principles (GAAP) to review all of their federal and state tax positions — including decisions not to file in a particular state — and to determine whether the positions would "more likely than not" withstand a challenge by the IRS or a state tax authority.

If a position fails the more-likely-than-not test, the corresponding tax benefit isn't recognized in the company's financial statements. For positions that meet the test, FIN 48 outlines a complex process for determining the portion of the benefit that should be recognized. In either case, the company must establish reserves for the portion of the tax benefit that isn't recognized and make financial statement disclosures about uncertain tax positions.

When making its decision, FASB took into account that pass-through entities — such as partnerships, S corporations and limited liability companies (LLCs) — haven't been adequately defined. In fact, partnerships and LLCs can have multiple pass-through entities, thus making it difficult to determine which entity is liable for taxes. FASB expects to finalize and issue an FASB Staff Position (FSP) that offers guidance for pass-through entities and provide amendments to the existing disclosure requirements for nonpublic entities in the first quarter of 2009.

Although FASB's decision is good news for private companies, it doesn't mean they can put off thinking about FIN 48 for a year. These companies should start examining their situations soon to evaluate the potential impact of FIN 48 on their financial statements and to ensure that procedures are in place to gather the information FIN 48 will require.

If you have any questions about how FIN 48 affects your company and the preparation of its financial statements, please let us know. We would be glad to review your situation and help you prepare any information required to comply with this new accounting rule.