Weathering FIN 48

Both private and public companies are faced with new rules regarding the way they report income taxes and to evaluate the merits of their tax positions under the law. The Financial Accounting Standards Board recently issued FASB Interpretation No. 48, which prescribes specific rules governing financial accounting for uncertain income tax positions. The rules are a dramatic change from previous methods and now include a higher threshold and measurement that tax benefits must meet before they can be recognized in financial statements.

Historically, companies generally prepared their financial statements based on their income tax returns. Companies used various methods to reflect the possibility that additional tax might be assessed on audits for additional tax liability. Under FIN 48, there are very specific guidelines for how that additional tax is now assessed. In summary, a company cannot recognize the tax benefit from an uncertain tax position in its financial statements unless the company concludes that it is more likely than not that the benefit will be sustained after an audit or in litigation.

What does this mean for businesses? The manner in which companies respond to and adopt FIN 48 is expected to vary depending on the companies' particular circumstances. FIN 48 could lead to fundamental changes in basic tax reporting systems and processes. It also will influence a company's policies and procedures concerning taking uncertain tax positions on their tax returns as well as require more resources from an accounting firm to properly record tax liability. In addition, FIN 48 will adjust a company's retained earnings statement.

-- F. Jeffrey Kovacs,
Alpern Rosenthal,
jkovacs@alpern.com

Voluntary cleanups get aid

The U.S. Supreme Court recently clarified that companies that voluntarily clean up Superfund sites and other environmental hazards have the right to recover cleanup costs from other companies and organizations.

When a company cleans up an environmental hazard, it has long been able to recover costs from other companies that helped to create the hazard or owned the property. The real question has always been whether they can use the Superfund statute to do it. The federal Superfund statute offers much stronger remedies than those available under state environmental laws.

In 2004, the Supreme Court said part of the Superfund law can be used to recover costs, but only if the cleanup resulted from a government order or a lawsuit.

Now, the Supreme Court is saying that a company can recover its costs even if the cleanup was voluntary, using another section of the Superfund statute.

The likely fallout from the decision is that companies will be more willing to clean up sites without a government directive requiring that the work be done, and the federal courts will be the preferred route for seeking remuneration for some or all of those costs.

-- Patrick H. Zaepfel,
Meyer Unkovic & Scott,
phz@muslaw.com