Ready for FIN 48? A look at the tax positions that must be considered.

• Author: DeTrane, Joseph S.
• Position: NotforProfitOrgs

it's hard to believe that it's been almost three years since FASB first issued its Interpretation Number 48 (FIN 48). Yet, 2009 will be the first time that most not-for-profit [IRC.501 (c) (3)] organizations will have to address the tax positions and approaches that can be taken to meet the FIN 48 requirements.

The Rundown

FIN 48 was first adopted to be applicable for financial statements issued in accordance with generally accepted accounting principles, beginning with the GAAP financial statements for the fiscal year beginning after Dec. 15, 2006. Subsequent FASB staff positions allowed for a deferral of the effective date for non-public not-for-profit organizations until the GAAP financial statement first issued for the fiscal year beginning after Dec. 15, 2008. Note that public not-for-profit organizations, such as those that issued tax exempt bonds, were not granted the deferral and were required to adopt FIN 48 for the fiscal year beginning after Dec. 15, 2006.

A not-for-profit organization's perspective on FIN 48 is unique in that most did not usually have to give much consideration to taxes when preparing their financial statements in the past. In prior year financial statements, a not-for-profit organization likely had a very succinct tax footnote indicating that the organization was tax-exempt under IRC Sec. 501 (c)(3). In California, the organization would note a similar tax exemption from the FTB.

Upon hearing about FIN 48, the natural first reaction of many not-for-profit organizations was that FIN 48 does not apply to them since they are tax-exempt. Another reaction could be that, since they have filed their Information Return Form 990 with the IRS and Form 199 with the FTB, what uncertain tax positions have they taken?

While FASB has indicated that it will issue guidance and examples to help clarify the application of FIN 48 to not-for-profit organizations, the guidance is still forthcoming.

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One thing that is clear is that the status of a not-for-profit as tax-exempt is in and of itself a tax position. This will be particularly challenging for organizations that claim exemption under IRC Sec. 501 (c) (3) as this particular section is the most stringent for exemption qualification and many of the qualifications for this status are based on facts and circumstances, rather than a compendium of case law or a collection of IRS settlement history.

Definitions and Tax Positions

IRC Sec. 501 (c) (3) provides that an organization is generally exempt from income tax if:

* Organized and operated exclusively for religious, charitable, scientific, educational or certain other purposes.

* No part of the net earnings inures to the benefit of any private shareholder or individual.

* No substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation.

* It does not participate in, or intervene in, any political campaign on behalf of or in opposition to any candidate for public office.

Note: the organization is subject to tax on...