Thursday, May 24, 2007

FIN 48: Holy Smokes Tax Man!

New accounting standard FIN 48 essentially requires companies to disclose when they've taken an aggressive tax position and to estimate how bad it will be if their aggressive position is wrong. It's more complicated than that but when you boil it down to small syllable words, that's what it is. This creates a large bat signal flashing "IRS look here".

Now the IRS has acknowledged that they can see the bat signal and will be sending caped crusaders in the form of friendly IRS agents to follow up.

Nobody is condoning obvious lawbreaking. The real criminal here is Congress who refuses to pass reasonable tax reform and continues to tinker with the mutant villain that is the US tax system. God knows that the Penguin and the Joker combined aren't nearly the threat to your wallet that Congress is. The problem that I see with FIN 48 is that it puts the burden on the company. U.S. Firms are already lawyered to the hilt and firms complex enough to really feel the FIN 48 burden are often going to take the path of least resistance by not taking an aggressive position. This may be good for the IRS but it's bad for competition. The IRS is not always right. That's why they are called the IRS, not the GOD. It's important that companies be willing to challenge IRS positions and I think that this standard will make fewer companies willing to do so.

In the spirit of FIN 48 I would like to disclose that I may have taken an aggressive speed position on my morning commute. Feel free to investigate. Consequently, I've set aside a $100 from my grocery budget to cover the ticket the Highway Patrol may or may not send me. Once statute of limitation has expired, I will add that $100 back to my grocery budget where of course, it will be worth about $90 post inflation.

I have also taken an aggressive position with respect to oil changes and have budgeted $500 for car repairs in the event that delaying an oil change by 1,000 miles will actually break anything. I will be disclosing my $500 set aside to my dealer when I bring the car in for an oil change so that they can decide if anything actually needs repair.

Finally, in the spirit of FIN 48, we will be disclosing to our customers the amount of receivables that we have set aside as potentially uncollectible for their account. That way our customers can figure out exactly how much to not pay us and still continue doing business with us. (For those of you, like IRS agents, who have had your sense of humor surgically removed, that was a joke.)

FIN 48 seems pretty dumb when you start applying the same logic to other stuff.


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