Page 226 - The TEFRA Partnership Audit Rules Repeal:

ALI CLE Live Video Webcast / “The TEFRA Partnership Audit Rules Repeal: Partnership and Partner Impacts” June 7, 2016, Jerald David August and Terence Floyd Cuff
for-profit organizations, and pass-through entities (including limited liability companies, limited partnership and S corporations).
FIN 48 provides a detailed set of principles and applicable rules in determining how to treat such uncertain tax items, referred to as “units of account,” and sets forth a two-step process to recognize and measure a tax position taken or expected to be taken on a tax return.
As described in FIN 48,
The evaluation of a tax position in accordance with this Interpretation is a two-step process. The first step is recognition: The enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more- likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one of the following:
a. An increase in a liability for income taxes payable or a reduction of an income tax refund receivable
b. A reduction in a deferred tax asset or an increase in a deferred tax liability
c. Both (a) and (b).
b. FIN 48’s Two Part Process.
FIN 48 is divided into various categories or segments. These provide guidance on the subjects of recognition, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
In general, differences in financial and tax accounting with respect to uncertain tax items will result in: (i) an increase in a liability for income taxes
© Terence Floyd Cuff and Jerald David August, 2016
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