FASB Releases Proposed FSP, ‘Definition of Settlement in FIN 48’

March 1, 2007

FEI Summary

On Feb. 27, 2007, the Financial Accounting Standards Board (FASB) posted for comment proposed FSP No. FIN 48-a, "Definition of Settlement in FASB Interpretation No. 48 (FIN 48)." The proposed FSP would amend FIN 48, Accounting for Uncertainty in Income Taxes, to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.

The proposed FSP was issued in response to requests that the FASB provide clarification on the following:

a. The meaning of the term ultimate settlement, as used in paragraph 8;

b. The meaning of the terms ultimately settled and negotiation, as used in paragraph 10(b);

c. The general concept that “a tax position need not be legally extinguished and its resolution need not be certain to subsequently recognize or measure the position,” as set forth in paragraph 12.

Although the guidance was initiated in response to requests for clarification of the term "ultimate settlement" in FIN 48, the FASB staff ultimately decided to base the clarification on a new term, "effectively settled," which it defines (and sets criteria for) in the proposed FSP.

The board initially discussed the development of this proposal at its Feb. 7 board meeting.

The comment deadline is March 28.

Prepared Mar. 1, 2007 by Christine DiFabio (cdifabio@FinancialExecutives.org) Director, Technical Activities Financial Executives International (FEI). This summary does not reflect FEI opinion unless specifically stated above.