FASB To Tighten Rules For the Booking Of Questionable Tax Benefits

by Leroy Baker, Tax-News.com, New York

03 December 2004

The US accounting standards regulator, the Financial Accounting Standards Board (FASB), is set to release a proposal that will seek to clarify when firms can book tax benefits on financial statements, according to Dow Jones.

The intention of the new rule is to prevent companies being able to recognize a tax benefit unless they have a “probable level of confidence” over its ability to withstand IRS scrutiny.

The FASB feels the new rule would reduce a firm’s ability to use the tax rules to inappropriately inflate earnings on their financial statements and mislead shareholders, thus helping to avoid a repeat of future Enron-style abuses.

According to Leslie Seidman, a member of the FASB, the new rules will improve financial accounting standards by “making it clear what level of assurance you need to have about the realization of a tax benefit before you recognize it in financial statements."

However, business is understood to be unhappy about the new proposals, complaining that under the FASB’s plan, companies would face a higher standard for the booking of tax benefits in financial statements than they would for claiming benefits on tax returns.

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