Those of you in the for-profit business world may have heard this jargon recently. Financial Interpretation No. 48 ("Fin 48") is a new accounting standard called “Accounting for Uncertainty in Income Taxes.”

The standard has recently been retitled, but it lives in our hearts and ulcers as Fin 48. In certain circumstances, it requires recognition of tax balances on financial statements that are not recorded on corporate tax returns, if those returns include "uncertain" tax positions. Some examples of tax positions include determining whether a meal expense is 50 percent or 100 percent deductible or determining whether or not a tax return should be filed in another state.

Fin 48 is required only under United States Generally Accepted Accounting Principles (US-GAAP) and is not present in international accounting standards. It became effective Jan. 1, 2009, for private companies that issue US-GAAP basis financial statements and has been in place for publicly traded companies since 2007.

Fin 48 applies only to income taxes; sales, use, property, and franchise taxes are exempt. Additionally, it's limited to entity-level taxes. Pass-through entities that pass their tax liabilities through to their shareholders' tax returns are, for the most part, exempted too. However, pass-through entities that pay state or local income taxes may still be affected since several jurisdictions, including Michigan's Business Tax, tax business income at the entity-level and therefore apply to Fin 48.

Fin 48 is an expansion of the existing rulebook on accounting for taxes but with notable exceptions.

It introduces new scrutiny to non-filed tax returns and grey area interpretations that didn't exist in the thought process before.

There are now no allowances for "horse-trading" or tax audit probability ("audit roulette"). Fin 48 assumes that all potential tax auditors know everything businesses and their tax preparers know about each tax position.

And if those hypothetical tax auditors do not agree there is a more likely than not chance of accepting each tax position, then US-GAAP now says (via Fin 48) that additional tax liabilities should be recorded, along with related interest and penalties.

Interestingly, outside tax preparers have a less stringent compliance standard than the more likely than not Fin 48 threshold. Fin 48 further assumes the hypothetical auditors will pursue investigation of uncertain tax positions without restriction of time, money or other resources, and also ignores any probability that more favorable results could be negotiated in real life tax audit situations.

In working with our clients at Wright, Griffin, Davis, many business clients file their income tax returns according to our shared understanding that they are playing by the rules. In these cases Fin 48 is not really an issue.

Other taxpayers take tax positions based on a calculated business risk; deciding whether or not to file multi-state tax returns is a common example of this. This new standard puts CPAs in a difficult position with their clients, who now find themselves paying their CPA firm to make potential tax collectors' jobs easier. In the financial regulators' continuing quest for more and more corporate transparency, many feel this change has gone too far.

Christine Sing is a CPA, MBA and director at Wright, Griffin, Davis and Co. in Ann Arbor. Business Accounting is a recurring column at AnnArbor.com's Business Review.