US GAAP - uncertain tax positions

By Tolley in association with Nick Watson
Corporation_tax_img9

The following Corporation Tax guidance note by Tolley in association with Nick Watson provides comprehensive and up to date tax information covering:

  • US GAAP - uncertain tax positions
  • Asset rather than liability approach
  • Unit of account
  • The more likely than not recognition threshold (Step 1)
  • Amount of benefit to recognise (Step 2)
  • Example of numerical calculation
  • Issues subject to litigation
  • Reassessment of the provision
  • Interest and penalties
  • Disclosures
  • Interaction with form UTP

This guidance note covers the aspects of ASC 740 which deals with accounting for uncertain tax positions. Previously this guidance was contained within the interpretation FIN 48.

Currently, the guidance under US GAAP is significantly more involved than under IFRS and also the level of disclosure of uncertain tax positions is far greater under US GAAP. See the IFRS Introduction guidance note for further guidance on uncertain tax positions under IFRS.

Asset rather than liability approach

When looking at uncertain tax positions, US GAAP looks at these from the perspective of tax benefits not recognised rather than liabilities provided for.

For example, suppose a filing position is taken on a tax return such that a deduction is claimed which reduces the tax payable by £100. On balance, it seems more likely that were the item examined then HMRC would prevail. The accounting analysis would be:

  • IFRS/UK GAAP - a provision is made for £100
  • US GAAP - there is a potential benefit of £100 which has not been recognised

In both cases, the outcome is the same in that the net assets of the company are £100 lower than they would have been in the scenario that the deduction was certain.

This guidance note is written from the US GAAP perspective of unrecognised tax benefits.

Unit of account

The other concept that applies under US GAAP but not IFRS or US GAAP is the unit of account. A unit of account will vary depending on the circumstances, and a company would take into account:

    More on US GAAP for UK companies: