What You Should Know About FASB ASC 740-10
Overview
FASB Accounting Standards Codification (ASC) Subtopic 740-10 No. 48 provides accounting and disclosure guidance on the recognition of taxes payable or refundable, and all income tax positions.
Each income tax position must meet a more-likely-than-not test (MLTN) so a company can be prepared to take tax risks.
Subtopic 740-10 applies to GAAP-basis financial statements that will be audited and reviewed in the future. It does not apply to cash-basis financial statements or any other non-GAAP basis statements.
The Process
Under Subtopic 740-10, clients need to carefully apply the provisional process to document any new uncertain tax positions:
- For all open years plus the current year, inventory all tax positions,
- Using the MLTN standard, classify all tax positions as uncertain or routine business transactions,
- Decide whether the tax benefits from uncertain tax positions (and how much of those benefits) should be reported in the financial statements.
Takeaways
In prior years, privately held companies that were involved with aggressive tax planning are still required to disclose those positions and write a statement of its impact.
When conducting this review, clients must use their professional judgment to identify material tax positions.