Fin 48

FIN 48, accounting for uncertain tax positions, is an interpretation clarifying FAS 109, which is accounting for income taxes. FAS 109 didn't have the tools to measure and record tax benefit of uncertain tax position, so FIN 48 was introduced. The main focus of FIN 48 is to increase comparability and relevance for uncertainty in income taxes. This will require accounting firms to work even harder with their clients, especially the management team, to sort what tax position is uncertain and to recognize and record it properly. The determination of a company's tax positions follows two steps: Recognition and Measurement. The unit of account concept is also very important.

Under the recognition step, a "more-likely-than-not" threshold is used to recognize and measure tax positions. The more likely than not threshold means that benefit related to an uncertain tax position may not be recognized in the financial statements unless it is more-likely-than-not that the position will be sustained based on its technical merits and There must be more than a 50 percent likelihood that the position would be sustained upon audit. Base on its technical merits means that the tax position will be examined and evaluated by the relevant taxing authority with full knowledge of all relevant Information. Sustained upon audit includes related appeals or litigation.

The measurement step is required to determine the amount of tax benefit that can be recorded in financial statements and it is applicable only if the recognition step is met. Under the Measurement step, the tax benefit of a qualifying position is the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.