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FIN 48 and Tax Accrual Workpaper (TAW) Policy Update LMSB Commissioner Memorandum dated May 10, 2007

                                                                                            LMSB-04-0507-044

May 10, 2007   

MEMORANDUM FOR EXECUTIVES, MANAGERS, AND EXAMINERS
                                          LARGE AND MID-SIZE BUSINESS DIVISION

FROM:       Deborah M. Nolan /s/ Deborah M. Nolan
                    Commissioner, Large and Mid-Size Business Division

SUBJECT:  FIN 48 and Tax Accrual Workpaper (TAW) Policy Update

The purpose of this memorandum is to provide you with information regarding the impact on LMSB resulting from a development in the financial accounting environment.   FIN 48 must be adopted and implemented in financial statements for years beginning after December 15, 2006.  Therefore, many Quarterly Statements (10-Qs) issued by public reporting companies for the period ended March 31, 2007 will reflect information not previously required.  For consistency, clarity and the sake of emphasis, I want to communicate our current policy as well as developments you should watch for in the near future.

  • FIN 48 disclosures reported in quarterly and/or annual financial statements, and any other public documents should be considered by examiners and others when conducting risk assessments.  If you are engaged in an examination, a CAP engagement, a PFA or other taxpayer interaction and you are unsure of the implications of information reported under the new FIN 48 disclosure requirements, you should discuss that information with appropriate taxpayer personnel, just as you would any information concerning taxes that may raise a red flag. 
  • We have received a determination from Counsel that FIN 48 Workpapers are Tax Accrual Workpapers (TAW), and they are therefore subject to our current policy of restraint.
  • LMSB is evaluating its TAW Policy to ensure that it is still appropriate in today’s environment.  Meanwhile, the current policy should be followed.    For specific rules regarding the TAW Policy, you should refer to IRM 4.10.20.  When we have completed our evaluation, we will advise you as necessary.
  • We recognize the complexity involved in the preparation of TAW by taxpayers and their advisors, and that there may be various methods used by different taxpayers.  We also have varied experience levels in examining TAWs because of our past practices and our “policy of restraint.”  To support you in your work with TAW, LMSB has created a TAW Cadre whose members are available to assist with the review of documents received in response to TAW IDRs.  The primary objective of the Cadre is to assist LMSB examiners in determining whether items received fulfill the IDR, whether additional documents should be requested, and in considering the risk assessment related to the review of those tax accrual workpapers. 
  • LMSB is rolling out a 6-Hour Mandatory CPE program between June and November, 2007, to provide an overview of FIN 48 information and disclosures you should expect to see, and how you may use the information to conduct risk assessments.  In addition, the CPE Instructors from each DFO area will serve as your resource person – they all have recent experience in financial accounting.
  • We have developed a new LMSB Field Examiners’ Guide, "FIN 48 Implications”.

I also want to use this opportunity to thank the many examiners, specialists, technical advisors and managers who participated in the FIN 48 Initiative that LMSB launched last Fall.  We were able to resolve most of the issues within the timeframes agreed to by the Exam Team and the Taxpayers.  This high level of success suggests an agile and able workforce, and I am confident that you will continue to deliver quality results in a consistent and timely fashion. 

Page Last Reviewed or Updated: 27-Nov-2013