More than 28 percent of large public companies are not fully meeting disclosure requirements for tax reserve estimates, according to a new report.
Financial Accounting Standards Board Interpretation 48, FIN 48, sets standards requiring companies to account for uncertainty in income taxes. A report by the tax reserve advisory firm Seigel & Associates analyzed the annual reports of more than 600 companies whose revenues exceed $2 billion.
The report found that the greatest area of noncompliance was the "12-month look-forward rule," in which one of every eight companies provided no disclosure. This requirement concerns reporting of tax positions that have a reasonable possibility of significant variation over the next 12 months.
As a result of the adoption of FIN 48, 280 of the reporting companies increased their tax reserves - the amount set aside by companies pending post-filing tax adjustments - by a total of $8.1 billion. Meanwhile, 151 companies decreased their tax reserves by a total of $6.8 billion as a result of FIN 48. The net increase in total tax reserves due to FIN 48 adoption was $1.4 billion, according to the report.
In 2007, 321 companies increased their tax reserves by a total of $14.8 billion, and 221 decreased their tax reserves by a total of $12.9 billion. The overall net increase for the reporting companies in total tax reserves for 2007 was $1.9 billion.
