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[ILLUSTRATION OMITTED] EXECUTIVE SUMMARY * FASB Interpretation no. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, sets the threshold for recognizing the benefits of tax return positions in financial statements as "more likely than not" (greater than 50%) to be sustained by a taxing authority. The effect is most pronounced where the uncertainty arises in the timing, amount or validity of a deduction. * Thresholds applicable to tax practitioners have been revised from a "realistic possibility" to "more likely than not" that a tax position will be sustained, as set forth in the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007 that was signed into law in May. * A third threshold, that a tax position possesses a "reasonable basis" in tax law, has been regarded as reflecting 25% certainty. In addition, taxpayers are subject to penalties if an understatement of liability is caused by a position that lacks "substantial authority," a threshold for which no percentage of certainty has been established but has been regarded as between the reasonable-basis and more-likely-than-not standards. * Being familiar with the different thresholds for the reporting of uncertain tax positions can help CPAs effectively advocate for their clients' tax positions and be impartial in financial reporting. ********** Last year, FASB issued Interpretation no. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. It sets the threshold for recognizing the benefits of tax return positions in financial statements as more likely than not to be sustained by the relevant taxing authority. This threshold was significantly higher than tax reporting thresholds for practitioners and taxpayers, likely leading to discrepancies between how uncertain tax positions would be reported for purposes of income tax versus financial statements. In May 2007, the tax law for practitioners changed. This article describes the convergence of uncertainty thresholds for tax positions and identifies potential issues for CPAs and their clients to consider when making tax and financial reporting decisions. FIN 48 THRESHOLD FIN 48 augments FASB Statement no. 109, Accounting for Income Taxes, to increase the comparability of financial statements by providing guidance on uncertainty in tax positions. It defines a tax position as one reflected in measuring any current or future reduction in taxable in come reported or expected to be reported on a tax return, the decision not to report a transaction in a tax return, or an assertion that the reporting entity is not subject to taxation. In essence, its threshold of greater than 50% certainty constitutes a positive assertion by management that the reporting entity is entitled to the economic benefits of the tax position. FIN 48 prescribes a two-step evaluation for recording uncertain tax positions. First, determine whether the more-likely-than-not threshold is met. Second, measure the benefit of the tax position at the largest amount that is greater than 50% likely to be realized upon effective settlement. Recognizing the benefit from a tax position in the financial statements that is less than the tax effect reported in the tax return (1) creates a current or non-current liability, depending on the timing of the cash flows; and/or (2) reduces the amount of tax net operating loss carry-forward or amount refundable from the taxing authority. FIN 48 may also affect the measurement of deferred taxes. Deferred tax assets and liabilities should be computed as the difference between the carrying value for financial reporting purposes and the tax basis calculated using FIN 48. FIN 48 applies to all tax positions accounted for under Statement no. 109, including tax positions to be acquired in business combinations, as of the beginning of the first fiscal year beginning after Dec. …