FIN 48 (mostly codified at ASC 740-10) is an official interpretation of United States accounting rules that requires businesses to analyze and disclose income tax risks.
U.S. Generally Accepted Accounting Principles have long required that income tax be accrued for all events recognized for financial reporting purposes.
The business must then record tax expense or benefit, liabilities, and assets, as so measured.
Further, businesses must accrue and disclose the effect of interest and penalties as part of the FIN 48 analysis.
FIN 48 clarifies several aspects of this process: The level of detail of the analysis (unit of account) depends on how the business keeps its records, presents its financial statements, and deals with tax authorities.
[3] Thus, for example, a position would not be acceptable merely because an Internal Revenue Service agent allowed it in a previous year.
In addition to accruing the tax, FIN 48 requires disclosures in footnotes to the financial statements.
Year end statements must include: Parties involved in disposition of a business to US publicly traded companies need to take into account the potential that FIN 48 disclosures might alert relevant tax authorities to aggressive tax positions taken by the business.