Fin 48 - Fredrikson & Byron PA

Any lawyer who purported to predict, with any degree of certainty, the likely
outcome of an existing uncertain tax dispute, let alone one that was still purely
hypothetical, would be insane. On what basis could the most divining mind conclude that
a tax position had, say, a 55% chance of prevailing, rather than only a 45% chance of
doing so? Nevertheless, the FASB further assumes that an enterprise can rationally
determine the likely terms and range of a settlement with the government, even before the
government has begun the audit, let alone formulated a settlement position. FIN 48,
however, assumes that such ability exists, with enormous consequences turning on the
decisions reached.
Were these threshold MLTN reserve recognition problems not sufficiently
impossible, FIN 48, as evidenced by Table A21, magnifies the problem by imposing the
added burden upon the company of attempting to apply a sliding scale of percentage
probabilities of a successful outcome against a sliding scale of potential additional
liability amounts. The assumptions and obligations outlined in the Table transport the
enterprise from terra firma into the outer reaches of the ozonesphere.
Enterprises, their auditors, and lawyers can, at best, rationally opine regarding
outcomes that are either “probable” winners or losers for FAS 5 gain and loss
contingency purposes, but it is fanciful to assume that they can reasonably and reliably
predict the outcomes of the vast majority of tax disputes that fall between those extremes
and are, by definition, “uncertain.”
Precisely for such reasons, lawyers are barred under the terms of an ABA/AICPA
treaty from rendering opinions to an enterprise’s auditors that are any more refined than
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