CFMA News Center

Tax & Accounting News

FASB Delays FIN 48 for Nonpublic Entities

Norwalk, CT, January 8, 2008—The Financial Accounting Standards Board (FASB) has issued for exposure proposed FASB Staff Position (FSP) FIN 48-b, Effective Date of FASB Interpretation No. 48 for Nonpublic Enterprises. The FSP proposes to defer the effective date of Interpretation 48 for nonpublic entities to fiscal years beginning after December 15, 2007. This effectively delays FIN 48 for most nonpublic entities.

The Board proposed a deferral in response to a recommendation of the Private Company Financial Reporting Committee (PCFRC), which said many nonpublic entities, in particular nonpublic pass-through entities, required more time to study and apply the provisions of Interpretation 48. Nonpublic entities that have already adopted the provisions of Interpretation 48 would not be eligible for the deferral. The amendments contained in the proposed FSP clarify that the provisions of Interpretation 48 have been adopted if the nonpublic entity has issued financial information prepared in accordance with U.S. GAAP to third parties.

Constituents have until January 18, 2008 to submit written comments on the proposed FSP. CFMA members who have opinions on the FSP should contact Lynn Mitchell.

FASB Defers FIN 48 for Nonpublic Companies

FASB approved a one-year deferral of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) for nonpublic companies.

As CFMA outlined in its June 18 comments to the Private Company Financial Reporting Committee (PCFRC), FASB cited complications associated with pass-through entities, for example, S corporations, as well as other concerns identified by the PCFRC.

The PCFRC indicated that many nonpublic entities and their CPA practitioners are just becoming aware of the implications of FIN 48. The PCFRC noted that Statement 109 does not directly address pass-through entities. As such, many CPA practitioners did not believe that FIN 48 applied to to S-corporations and partnerships.

This deferral does not apply to nonpublic companies that have already adopted FIN 48. The formal deferral extension will be set forth in a FASB Staff Position, that will be issued in exposure form for a 30-day period.

Treasury, IRS Extends Transition Relief for Deferred Compensation Plans

Washington, DC - The Treasury Department and the Internal Revenue Service (IRS) announced that the transition relief for compliance with the final regulations under section 409A of the Internal Revenue Code (409A) has been extended generally for one year.

Section 409A was effective on January 1, 2005 and all affected nonqualified deferred compensation plans have been required to comply with the statute since that date. Under prior guidance, these plans were required to comply in operation with the final regulations beginning in 2008. The Treasury Department and the IRS expect to issue guidance regarding a correction program as soon as possible.

The regulations provide guidance regarding the requirements for deferral elections and payment timing under section 409A. The regulations were in response to legislation enacted by Congress in 2004 to address concerns involving reported abuses of nonqualified deferred compensation plans.

DOT Releases Report on Highway Construction and Maintenance Costs

Washington, DC - The Department of Transportation (DOT) reports that highway construction and maintenance costs nationwide grew approximately three times faster from 2003 through 2006 than their fastest rate during any 3-year period between 1990 and 2003, substantially reducing the purchasing power of highway funds.

According to the DOT, these increases are largely the result of escalation in costs of materials, such as steel and asphalt, and reflect structural, not transitory, economic changes. Consequently, the agency expects these material costs to remain elevated, and possibly continue to expand, in the near term.

For the entire report, click here.

TREASURY AND IRS EXTEND DOCUMENTATION DEADLINE FOR 409A COMPLIANCE

Washington, D.C. - The Treasury Department and the Internal Revenue Service (IRS) announced today that taxpayers will have until December 31, 2008 to bring documents into compliance with the final nonqualified deferred compensation regulations under section 409A of the Internal Revenue Code.

In April, Treasury and IRS issued final 409A regulations, which provided guidance regarding the requirements for deferral elections and payment timing under section 409A. Affected plans and arrangements were required to comply with the final regulations by December 31, 2007. IRS Notice 2007-78 extends the document compliance deadline for one year and provides additional limited transition relief, but does not extend the January 1, 2008 effective date of the final regulations.

Notice 2007-78 also announces that Treasury and the IRS anticipate issuing guidance containing a limited voluntary compliance program that will permit corrections of certain unintentional operational violations of section 409A.

The final regulations were in response to legislation enacted by Congress in 2004 to address concerns involving reported abuses of nonqualified deferred compensation plans.

IRS Announces Pension Plan Limitations for 2007

WASHINGTON - The Internal Revenue Service announced cost of living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2007.

Many of the pension plan limitations will change for 2007. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,000 to $15,500. This limitation affects elective deferrals to Section 401(k) plans and to the Federal Government's Thrift Savings Plan, among other plans.

Effective January 1, 2007, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $175,000 to $180,000. For participants who separated from service before January 1, 2007, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2006, by 1.0334.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $44,000 to $45,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,000 to $15,500.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $220,000 to $225,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $140,000 to $145,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $885,000 to $915,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $175,000 to $180,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $100,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $325,000 to $335,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $450 to $500.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $15,000 to $15,500.

The compensation amounts under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of "control employee" for fringe benefit valuation purposes is increased from $85,000 to $90,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $175,000 to $180,000.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $10,000 to $10,500.

Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

FASB Changes to GAAP Hierarchy May Affect Some Contractors

FASB is pursuing a project that would redefine the order of precedence in which Generally Accepted Accounting Principles (GAAP) would be applied for financial reporting.

Under the existing GAAP hierarchy, if a company uses a pre-existing, accepted industry practice to measure financial results, it can continue to follow that practice, in limited circumstances – even if a formal accounting pronouncement addressed the accounting principles for that industry. This is generally known as the "grandfathering provision" of the GAAP hierarchy.

As FASB proceeds with this project to redefine the GAAP hierarchy, it is likely to eliminate the grandfathering provision. This change will require all contractors to measure financial results under SOP 81-1, which requires contractors to measure contract revenue using the percentage of completion method when the contractor has the ability to estimate contract progress reliably.

Most contractors follow SOP 81-1 for financial reporting, but if your company relies on the grandfathering provision of the GAAP hierarchy to avoid the accounting requirements of SOP 81-1, please e-mail Lynn Mitchell, Co-Chair Accounting & Reporting Emerging Issues Subcommittee.

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