According to a new survey, The Seigel Tax Reserve Report, published by Seigel & Associates, LLC, more than 28% of “large public companies are not meeting the disclosure requirements for tax reserves required by the Financial Accounting Standards Board rule known as FIN 48.” The purpose of FIN 48 is to require corporations to disclose the amount of reserve that is kept to cover the possibility that the Internal Revenue Service or state tax officials might not permit certain tax treatments. Shareholders and analysts should be concerned with four main areas when looking at tax reserves: “how big are they, how have they changed from the prior year, how are they expected to change during the coming year, and what potential material issues may be lurking in the reserves.”
Based on the survey’s analysis of 600 annual reports filed with the SEC in the first quarter of 2008 of companies with revenues more than $2 billion, nearly 72 companies failed to provide the required “12-month look-forward” discussion under FIN 48. By failing to satisfy the “12-month look forward” provision, a company is essentially not disclosing to investors on whether the company’s unrecognized tax benefits will “significantly increase or decrease within 12 months of the reporting date.” Thus, a company creates an unnecessary uncertainty in the eyes of the investing public on the company’s immediate future. Stuart E. Seigel, the founder of the tax reserve advisory firm believes the “generally poor performance in this area of disclosure creates the greatest concern.”
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