FASB Interpretation 48 Accounting for Uncertainty in Income Taxes: An interpretation of FASB Statement No. 109
The AICPA just issued an update on FIN 48 with regards to privately held companies. Hopefully someone more familiar with FIN 48 will comment on this.
My interpretation of what I have read and discussed discussed with a CPA in Tax practice is that FIN 48 applies to complitations. In essence, it requires privately held companies to accrue for potential tax liabilities should they be audited! The best example is travel and entertainment expenses which are a immediate target when a company is being audited.
Thinking as an auditor, I would ask to see the company's compilation reports for the year under audit and ask how the accrual was calculated. About the only palatable explanation is "My accountant put it there. You'll have to ask her/him." But that just opens a bag of worms.
The CPA with whom I discussed this said that since a compilation is already a disclaimer, he would rather add a footnote for a Departure from GAAP for not disclosing potential tax liabilities.
The AICPA indicated that applying FIN 48 to S-Corps and Partnerships is under discussion.
On one hand, I am always opposed to tax fraud. On the other hand, FIN 48 is requiring the taxpayer to disclose their estimate of their tax deductions and their tax postions being disallow upon audit.
Dick