No vacation for TEI's Technical Committees: submissions address financial reporting, Canadian harmonization efforts, cell phone deductions, and State Nexus rules

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Date: Fall 2009
From: Tax Executive(Vol. 61, Issue 5)
Publisher: Tax Executives Institute, Inc.
Document Type: Article
Length: 2,012 words
Lexile Measure: 1730L

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Many people take time to visit the beach, the mountains, or other vacation getaways during the late summer and early fall, but Tax Executive Institute's technical committees have stayed busy crafting comment letters and other technical submissions on a broad variety of issues including international accounting standards, the province of Ontario's harmonization efforts, the deductibility of cell phone expenses in the United States, and state income tax nexus rules.

IAS 12: TEI Files First Comments with the IASB

TEI continued its support of convergence efforts aimed at minimizing the differences between international and U.S. generally accepted accounting standards by filing comments on the International Accounting Standards Board's exposure draft to revise its existing standard for income taxes. It marked the first time the Institute has submitted comments to the international organization. "TEI applauds the IASB for its efforts to narrow the differences between international and U.S. GAAP standards and to move toward a single set of high-quality accounting standards for financial reporting purposes," said TEI President Neil Traubenberg.

The IASB released the exposure draft of its revised standard on income taxes (IAS 12) for public comment in the spring. The revision proposed significant changes to the calculation of current and deferred taxes including the treatment of foreign subsidiaries and uncertain tax positions.

Addressing the treatment of investments in foreign subsidiaries, TEI supported the general approach of requiring the recognition of a foreign subsidiary's deferred taxes currently absent intent by the parent corporation's management to reinvest those earnings offshore indefinitely. This treatment largely mirrors the U.S. GAAP standard of APB 23 (now codified at FASB ASC 740-30-25-17). TEI urged the IASB, however, to require management to produce adequate documentation to support its intent. TEI's comment's explained that "[r]equiring sufficient evidence to support management's conclusions on this determination will enable auditors to better review the bases for these determinations."

The IASB's proposed treatment of uncertain tax positions also attracted the comments of TEI's Financial Reporting Committee. Rather than following an established treatment of these items, the IASB constructed a new approach requiring a "probability weighted average of all possible outcomes" for each uncertain tax position. The application of that rule would force issuers of financial statements to include in their reserve calculations even the most unlikely outcomes for each position. As an alternative, TEI urged the IASB to incorporate the provisions of FIN 48 (now codified at FASB ASC 740-10), which includes a recognition threshold requiring that a tax position have at least a more-likely-than-not chance of succeeding on the merits before any of the associated tax benefits may be recognized. "TEI believes the approach of FIN 48 is preferable because it does not require a company to estimate probabilities on positions that have a remote possibility of materializing," stated Mr. Traubenberg.

The letter also addressed allocations of tax to components of tax to components of comprehensive income. The IASB's exposure draft would mandate the use of "backward tracing" to match elements of comprehensive income and related tax expense. TEI recommended that...

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Gale Document Number: GALE|A238980608