FAS 109/ASC 740 - Accounting for Income Taxes

PKM is a top-ranked Atlanta firm with expertise in solving complex tax accounting issues.  Regulatory changes have impacted the way companies account for income taxes. Known as Financial Accounting Standard (FAS)109, these changes are very complicated and can have a significant impact on income statements and balance sheets. Many companies don’t have either the manpower to comply with FAS 109 requirements or the knowledge to compute the complex tax provision calculations, so they outsource the process to PKM.

We assist companies with their tax accruals, tax provisions and related FAS 109 computations and disclosures. For many of these companies we also prepare their tax returns. Clients benefit from our insightful solutions based on our industry analysis and experience and the fact that our professionals understand FAS 109 from the tax perspective and also know how these calculations affect the accounting side of the equation.

Accounting for Uncertain Tax Positions (FIN 48)

The Financial Accounting Standards Board (FASB) issued FIN 48 as an interpretation of FAS 109 in order to provide increased relevance and comparability of financial statements by providing consistent criteria to measure uncertain positions.

• For SEC registrants, FIN 48 was effective for fiscal years beginning after December 15, 2006.
• For private companies, FIN 48 goes into effect for all fiscal years beginning after December 15, 2008.
• FIN 48 applies to ALL tax positions within FAS 109, including
  
  
  • Deductions taken or expected to be taken
  • Taxable income excluded or expected to be excluded
  • Characterizations of income
  • Position taken not to file return
  • Position taken that transaction is tax-free
    

FAS 109 and FIN 48 Services

In applying FIN 48, companies need to determine and assess all material positions taken in any income tax return as of the date they adopt the provision. Documentation of uncertain tax positions can be time-consuming and tedious.  Not all tax benefits may be recognized – PKM offers the experience and resources to determine which positions will hold up under regulatory scrutiny.  Our services include:

• Implementation/compliance
• Evaluating positions according to their technical merits
• Calculating the maximum benefit available for positions held to the more-likely-than-not (MLTN) standard
• Assessing uncertain tax positions across multiple jurisdictions
• Preparing and reviewing financial statement disclosures or footnotes related to tax provision

Click here to read about changes on the horizon regarding Uncertain Tax Positions.

Effective Tax Rate Planning

Measuring the impact of tax expense or benefit is often not as simple as multiplying the statutory tax rates against book income or loss.  Many factors impact the effective tax rate.  Calculating the correct rate is essential to accurate financial reporting and can have a significant impact on the income statement and the balance sheet.  PKM has expertise in effective rate planning for multistate and even multinational companies in various taxing jurisdictions.

Deferred Tax Analysis

Taxable income is measured by taking book income, adding back non-deductible items, and subtracting non-taxable items.  However, many of these differences are temporary in nature and will reverse in the future, creating deferred tax assets (DTAs) and deferred tax liabilities (DTLs).  The professionals at PKM are experts in determining the nature of these differences, and tracking the deferred tax inventory which is often a major portion of the balance sheet, affecting capital and related ratios. 

Valuation Allowance (DTA Analysis)

Deferred tax assets, once they are calculated and recorded on the balance sheet, must be evaluated for their sustainability.  If a deferred tax asset is determined to have no chance of providing benefit due to the small likelihood of future taxable income, then a reserve must be recorded on the company’s balance sheet against all or a part of the DTA.  This is a valuation allowance.  PKM works with management to help assess the need for a valuation allowance and to plan for future deferred tax asset recognition.

Staff Outsourcing

Many companies do not have the resources to undertake the involved calculations and reporting requirements of FAS 109 and FIN 48.  PKM can provide the experience and expertise needed to tackle these projects through “loan-staff” arrangements.  Staff outsourcing can be cost-effective and efficient – we rely on the tools and information you provide us, and can often perform the work in your facilities, eliminating the need for shipping and excess data transfer.