What Is Fin 48?

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What is FIN 48?
In 2006 Fin 48 was made effective as proper guidelines to require publicly traded organizations to assess the probability of tax positions. This mandates that organizations analyze and report any income tax risks. Some refer to this as “the road map of things to audit for as these reports will largely influence who the Internal Revenue Service will audit.
At the beginning of November in 2007 the Statement of Financial Statements (SFAS) board decided to postpone the enactment of FIN 48 financial reporting and accounting and income taxes until later that year on December 15, 2007. The purpose of FIN 48 is to force public companies to analyze companies tax positions and evaluate the probability that their tax position will
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This interpretation of an organizations tax position as a result of FIN 48 is a process that involves two steps, one being recognition and two being measurement. In step one the organization determines how likely it is that their stated tax position will be maintained after being audited. This includes resolving any discrepancies, checking for accuracy, filing for any appeals and conducting an internal audit. While reviewing their tax position if their tax position will meet set guidelines the organization should already assume that their financial statements and tax position will be audited by a relevant taxing agency that will have the necessary knowledge and skill set to accurately audit all documents. Throughout step two a tax position that is more likely to be reviewed will determine the amount of the benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Differences between tax positions stated in a tax return and amounts recognized in the financial statements will usually conclude with the following:
1. An increase in a liability for income taxes payable or a reduction of an income tax refund receivable
2. A reduction in a deferred tax asset or an increase in a deferred tax liability
3. Both
An organization that provides a classified statement of financial position
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