Goodwill and intangible assets are often significant assets for many companies. Financial Accounting Standards Board (FASB) rules for treating goodwill and intangibles may have an important effect on the valuation of some companies. Current guidance from the Financial Accounting Standards Board (FASB) on goodwill and intangibles is covered under Topic 350, Intangibles-Goodwill and Other, which requires a reporting entity to first assess goodwill for impairment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the reporting entity’s fair value is less than its carrying amount, the second step of the impairment test must be performed in order to measure the amount of the goodwill impairment, if any.
The implications for past, pending and future mergers, acquisitions and other deals are significant, so it is important that business owners be familiar with these rules, Accounting Standards Codification (ASC) 805 (formerly Statements of Accounting Standards ("SFAS") 141 (R)), Business Combinations, and ASC 350 (formerly SFAS 142), Goodwill and Intangible Assets. SFAS 141 (R), issued December, 2007 and effective for fiscal years beginning after December 15, 2008, modified certain aspects of the original SFAS 141 issued in June 2001.
Many companies must comply with FIN 48, which requires businesses analyze and disclose income tax risks associated with uncertain tax positions. For U.S. taxpayers with significant related party transactions, the greatest source of uncertainty as to the taxpayer’s position is often transfer pricing. Altus Economics can assist U.S. taxpayers with related party transactions address FIN 48 and to quantify the amount of uncertain tax positions associated with transfer pricing in all open years and in a fiscal year yet to be filed.
FIN 48 (now codified at ASC 740-10) is an official interpretation of United States accounting rules that requires businesses to analyze and disclose income tax risks. In June, 2006 the Financial Accounting Standards Board issued Interpretation 48 of Financial Accounting Standard 109. This interpretation, known as “FIN 48”, is intended to eliminate inconsistency in accounting for uncertain tax positions in financial statements certified in accordance with U.S. GAAP. FIN 48 mandates new rules for recognition, de-recognition, measurement, and disclosure of all tax positions. FIN 48 is now effective for all entities adhering to US GAAP. A business may recognize an income tax benefit only if it is more likely than not that the benefit will be sustained in an IRS examination of a year in which the taxpayer seeks to obtain the benefit . The amount of benefit recognized is based on relative probable outcomes. Starting with the 2010 tax year, certain corporations were required to report uncertain tax positions using Schedule UTP.
In some cases, U.S. taxpayers with related party transactions may accumulate net operating losses. Under U.S. Federal income tax law, a net operating loss (NOL) occurs when certain tax-deductible expenses exceed taxable revenues for a taxable year. NOLs are a form of tax relief in the tax code that allows businesses to offset one year's losses against another year's income. Net operating losses may be carried back (used to offset profits in previous years) a specific number of years, or carried forward (used to offset profits in future years) depending on IRS regulations in effect at the time of the loss. The tax rules for deducting NOLs are given in § 172.
Taxpayers with related party transactions face the risk that a deduction for a NOLs may be disallowed if the IRS assets the NOL resulted from transactions that were not conducted on an arm's-length basis. Altus Economics can help U.S. taxpayers with related party transactions assess if its NOLs are at risk of disallowance by performing a review of the taxpayer's transfer pricing in the years in which the NOLs were generated. To the extent Altus Economics concludes the NOLs are viable and are likely to be sustained under and IRS examination, these reviews can be used by the taxpayer to support the application of NOLs that are carried forward.
Altus Economics, Inc.
195 South C Street, Suite 110
Tustin, CA 92780
email: altus.info@altusecon.com
Phone: 714-731-6093
Winner of "2016 Best Transfer Pricing Services - USA"
- Acquisition International 2016 Tax Awards.