Accounting For Uncertain Tax Positions Under FIN 48

• Excluding income streams that might be deemed taxable by the taxing authorities;
• Asserting that a particular equity restructuring is tax-free when that position might be uncertain; or
• The decision not to file a tax return for which such a return might be required.

The "More-Likely-Than-Not" Threshold

A benefit pertaining to an uncertain tax position may not be recognized in the financial statements unless it is more-likely-than-not (MLTN) that the position will be sustained based on its status with regards to its merits based on the tax law, and that there is more than a 50% chance that the position would be sustained if the taxpayer appealed to the highest relevant court.

Recognition of Liability

Unrecognized tax benefits and the related Interest and penalty exposures usually will result in the recognition of a FIN 48 liability.  This liability should be classified separately from deferred taxes.

Computation of Interest and Penalties

Interest and penalties, if applicable, should also be computed on any unrecognized tax benefits.  This computation should be performed using the interest and penalty computations based on the appropriate tax law.  You can use the IRS/State Interest & Penalty Calculator to make those computations.