Protecting Work Product in IRS Disclosures and During the Audit After Deloitte

FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes (formerly FAS 109, Accounting for Income Taxes, and FIN 48, Accounting for Uncertainty in Income Taxes), provides a two-step process for identifying and measuring uncertain tax positions for potential accrual and disclosure in a company's financial statements. First, the benefit of an uncertain tax position is recognized only when it is "more likely than not" that it would be sustained under examination by a competent authority (who has complete knowledge of all relevant information) considering the technical merits of the position through possible appeals and litigation. If the more likely than not threshold is met, then the second step measures and records the benefit at the highest amount which is more likely than not to be realizable (i.e., at 51 -percent likelihood or higher). A presumption of examination is built into the analysis. Also, an entity is to analyze all material tax positions, including those that arise because of its nonfiling of returns in certain jurisdictions (not only federal, but also state, local and international).