Manufacturing & Distribution Industry Insight

	1st Quarter, 2010

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about the Author

Greg has over 11 years of professional experience and serves as Senior Audit Manager in the Denver office of HEIN & ASSOCIATES LLP. He provides a wide range of audit and accounting services for both public and privately-held manufacturing and distribution companies. Greg regularly assists companies with financial reporting for complex transactions, including initial public offerings (IPOs), private offerings, and mergers and acquisitions. He has expertise in the areas of debt and equity financings, income tax accounting, and purchase price accounting.

In addition to manufacturing and distribution, Greg has developed a focus in high technology companies. He is a member of a variety of professional organizations, including Financial Executives International (FEI), and the Colorado Radio Frequency Identification (RFID) Alliance. Prior to joining HEIN & ASSOCIATES LLP, Greg was a staff accountant with Shelton & Associates in Bowling Green, Kentucky. He received his masters of public accountancy from Western Kentucky University.

Greg can be reached at 303.298.9600 or gpfahl@heincpa.com.

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Fin 48 and Non-Public Entities

By Greg Pfahl, CPA, Senior Audit Manager

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation Number 48, entitled Accounting for Uncertainty in Income Taxes (FIN 48), which becomes effective for non-public entities for years beginning after December 15, 2008.

Under the standard, positions that are determined by management to be less than 50% likely of being sustained upon examination are required to determine the amount of a liability to be recognized in the financial statements. The standard further prohibits the consideration of the likelihood of examination, and it should be assumed that all tax positions will be examined. Additionally, any applicable interest and penalties will need to be accrued.

Tax positions include such items as the following:

Allocations of income between jurisdictions
Decisions as to whether to file a tax return in a jurisdiction
Decisions to exclude income and/or include expenses in a tax return
Characterization of capital gain versus ordinary income
Classifying an entity or transaction as tax exempt

During 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-06, Income Taxes (Topic 740) – Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities. The ASU provides additional guidance on the application of FIN 48 by pass-through entities and tax-exempt not-for-profit entities, and eliminates certain disclosure requirements for non-public entities.

The three primary issues addressed by the ASU are as follows:

Clarification that management’s determination of the taxable status of the entity, including the status of a pass-through entity or tax-exempt entity, is a tax position subject to the standards of FIN 48.
Clarification of the attribution of income taxes to the entity or its owners is dependent on the taxing jurisdiction's laws and regulations. In other words, should income taxes be presented as an expense or benefit of the entity or as transactions with the entity’s owners?
Regardless of the tax status of a consolidated or combined reporting entity, the consolidated or combined financial statements should include all tax positions for each entity within a consolidated or combined group that is subject to income taxes or that has taxable income assigned to it from a pass-through entity.

Additionally, the ASU eliminated the need for non-public entities to disclose the tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of each annual reporting period presented in its’ financial statements and non-public entities no longer are required to disclose the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate.

Implementation of FIN 48 is going to require a detailed analysis of all open tax positions in all open tax jurisdictions, and companies should begin their analysis if they have not already done so.