How Does New Income Tax Accounting Apply to Not-For Profit Entities?
If you’re a non-profit organization you may have heard about FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) and just brushed it aside. But pay attention, as FIN 48 now applies to not-for-profit entities. The effective date for nonpublic entities, including not-for-profit entities to adopt FIN 48 is for fiscal years beginning after December 15, 2008. That means for entities that have a 12/31 year end, FIN 48 is applicable for 2009. The IRS will require a copy of the FIN 48 accrual footnote that is presented in the audited financial statements with the entity’s Form 990.
So what exactly is FIN 48? And why is it applicable to not-for-profit entities that are generally exempt from tax? In the basic sense, FIN48 requires that the tax effects of an event be recorded in the period that the event occurs, rather than when the tax effects are actually realized. The purpose of FIN 48 is to bring consistency as to when an accrual for income taxes is recorded.
When deciding if an income tax accrual is needed, FIN 48 requires the following assumptions:
- All of its income tax returns will be examined by the appropriate taxing authorities. (Assumes an audit will occur.)
- The examiners will have all the information. (They will know what you know.)
Not-for-profits must consider any additional taxes that may be due on the tax positions. A liability must be booked for taxes with a greater than 50% chance of being assessed by the proper taxing authorities.
It is important to note that FIN 48 is related to income tax positions, so sales, property, payroll and other non-income taxes are not within the scope. Please contact Terry Lanier or Michael Bryant at LMGW, Certified Public Accountants, LLP with any questions you may have about the adoption of FIN 48.
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