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Heads Up newsletter on FASB income tax interpretation

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17 Jul 2006

Deloitte & Touche LLP (United States) has published a special issue of the (PDF 143k) summarising FASB Interpretation No 48 Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No.

109. This interpretation is effective for financial years beginning after 15 December 2006, with early adoption encouraged. The interpretation takes a two-step approach for recognising and measuring tax benefits:
  • 1. Recognition: For each tax deduction or other tax position, an entity must make a hypothetical assessment: if a dispute with the taxing authority were taken to the court of last resort, is it more likely than not that the tax position would be sustained as filed? If it is, the recognition threshold is met.
  • 2. Measurement: An entity should recognise the largest amount of tax benefit that is greater than 50 percent likely of being realised upon ultimate settlement with the taxing authority. In this step, the enterprise should also presume that the taxing authority has full knowledge of all relevant information.
This matter is within the scope of the Joint IASB-FASB Convergence Project on Income Taxes. Since the policy of the two Boards is generally to look to the most recently issued pronouncement of the two Boards in reaching convergence decisions, the conclusions in FASB Interpretation 48 could well become the proposed answer in the joint project. You can download the full FASB Interpretation from the FASB Website without charge.

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