Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, was issued in July 2006 and interprets FASB Statement of Financial Accounting Standards (FAS) No. 109, Accounting for Income Taxes. For years beginning after Dec. 15, 2006, all GAAP-based financial statements must account for taxes in accordance with FIN 48, including a required analysis of all tax positions at the beginning of the period or, for calendar-year-end businesses, as of Jan. 1, 2007.
To help financial statement preparers, auditors and tax advisers meet this new requirement, the Accounting Standards, Auditing and Attest Standards, and Tax Teams have developed a "Practice Guide on Accounting for Uncertain Tax Positions Under FIN 48." Tax positions can be recognized only if they meet a "more-likely-than-not" threshold of being realized if challenged by a taxing authority with flail knowledge of the facts. If this level of certainty is not met, no tax benefit can be booked; even if it is met, only the amount that has a greater-than-50% chance of being sustained may be booked. Specific financial statement disclosures are required for uncertain tax positions.
The AICPA's 13-page practice guide includes highlights of FIN 48 and its implications for in-house accountants, auditors and tax advisers. It is not authoritative, but intended to assist members in quickly understanding the FIN 48 requirements. The practice guide is available without charge to all AICPA members and can be downloaded at www.aicpa.org/FIN48Guide.
Tax Practice Guides and Checklists
The Tax Division's annual package of Tax Practice Guides and Checklists is being posted online as premium content for Tax Section members, and was scheduled to be distributed to Tax Section members in January 2007 on CD-ROM. It is also available in a print version for a small fee. These products are also available to nonmembers through CPA2Biz.
The package exceeds 600 pages and includes over 100 return-specific checklists, along with tax organizers, engagement letters, practice management forms, topical practice guides and checklists for preparing and reviewing various types of returns. This package of tax practice tools is prepared by practitioners for practitioners, and is one of the most popular benefits of Tax Section membership.
Proposed Statement on Standards for Tax Services No. 9, Quality Control (SSTS No. 9)
In November 2005, proposed SSTS No. 9 was exposed to AICPA members for comment. In general, the exposed statement sets forth standards for members on the obligation to have a system of quality control for their tax practices (public practice) or functions (nonpublic practice). The nature, extent, comprehensiveness and formality of a tax practice's or function's quality control policies and procedures may vary, due to considerations such as the size of the tax practice or function, the number of offices, the degree of authority granted to personnel and offices, personnel's knowledge and experience, the nature of the tax practice or function, the practice area(s) or area(s) of specialty and appropriate cost-benefit considerations. Similar to the accounting and auditing quality control requirements, SSTS No. 9 includes sections on (1) integrity and objectivity; (2) personnel management; (3) acceptance and continuance of clients and engagements (public practice); (4) performance of professional services; and (5) monitoring and inspection.
More than 60 comment letters were received from individual members, firms, state societies and other CPA groups. The Tax Executive Committee (TEC) formed a task force to carefully review and consider the comments, and to recommend next steps.
When proposed SSTS No. 9 was exposed for comment, the TEC indicated that if the standard were made final, it would not be enforceable before June 30, 2007. Because of the numerous comments received, there is no intent to try and make a decision by that date; rather, the TEC intends that the task force take its time in recommending a resolution that is in keeping with the Tax Section's Mission and Strategic Plan.
Patenting Tax Ideas
In recent years, patents for "business methods" have been issued by the U.S. Patent and Trademark Office. A number of these patents (40 so far, with 60 applications now being considered) have been issued for tax-reduction strategies, particularly in the areas of estate and gift taxation.
Members of the AICPA attended a July 13, 2006 House Ways and Means Select Revenue Subcommittee hearing on the issue. Prior to the hearing, the AIPCA provided informal background and input to the Chief Counsel of the House Ways and Means Committee and other Hill staff. The Tax Patents Task Force also continues to discuss the issue with the IRS and the ABA Tax Section.
Recently, a wealth-management company filed a complaint in a Connecticut district court (Wealth Transfer Group LLC v. John W. Rowe, No. 3:06-cv-00024-AWT), alleging that an individual infringed its tax-strategy patent for establishing and managing grantor retained annuity trusts funded by nonqualified stock options. It is seeking an injunction and damages.
In February and June 2006, the TEC discussed the issue. The consensus was that the patenting of tax planning ideas is not sound; the TEC formed a task force to consider an appropriate follow-up. It is meeting to consider possible legislative solutions to the issue, including (1) restrictions on the issuance of tax-related patents; (2) "prior art" modifications; and (3) protection of the public.
IFAC and Tax Services
The International Federation of Accountants (IFAC) is considering changes to its Code of Conduct for tax services provided by auditors. The AICPA is a member of IFAC and generally incorporates the IFAC Code of Conduct into the AICPA Code of Conduct.
The TEC has formed a task force to review these proposed changes, and to monitor other proposals that may affect the scope of tax services that auditors provide to audit clients. This task force and the TEC are also working closely with the Professional Ethics Executive Committee on auditor independence matters.
As a senior technical committee of the AICPA, the TEC is authorized to speak for the AICPA on tax matters, and is also designated by governing Council as a standard-selling body. However, numerous other committees, TRPs and task forces initiate and develop proposed solutions to policy issues and technical and tax administration problems, for consideration and approval by the TEC. They also initiate proposals for valuable products and services for members in tax practice, and administer the AICPA's tax ethics program (i.e., SSTs).
Through its various task forces, TRPs and committees, the TK continues to monitor numerous projects. The Tax Division is committed to providing the best service possible to AICPA members. Leadership and membership appointments for committees and TRPs for the current committee year, which started October 2006, have been completed. However, members who would like to volunteer to assist in Tax Division activities should contact Ed Karl at (202) 434-9228 or email@example.com. Members having suggestions for new services or preducts should contact Bill Stromsem at (202) 434-9227 or firstname.lastname@example.org.
Jeffrey R. Hoops, CPA
Ernst & Young LLP
New York, NY
Mr. Hoops chairs the AICPA Tax Division's Tax Executive Committee. DC Currents heightens awareness of the Tax Division's activities and apprises readers of tax policy, technical issues and other practice support matters.
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|Title Annotation:||DC Currents|
|Author:||Hoops, Jeffrey R.|
|Publication:||The Tax Adviser|
|Date:||Feb 1, 2007|
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