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NAIC Proposes Uncertain Tax Positions

Have you recently completed your annual statement and thought to yourself, when will these footnote disclosures end?

At the National Association of Insurance Commissioners (NAIC) 2011 Spring Meeting held in Austin, TX, the NAIC proposed more potential disclosures in the area of taxes.

At the meeting, the NAIC provided a draft of a new statutory statement of accounting principle (SSAP), entitled, SSAP 101, Income Taxes, a Replacement of SSAP 10R and SSAP 10.

If this draft is finally adopted in its current form it will be effective as of January 1, 2012. While it does impact the three-component admission calculation in several ways, and expands certain requirements for tax-planning strategies, the most dramatic change is the addition of FIN-48 type requirements for statutory financial reporting purposes. A direct quote from the draft summarizes the new requirements:

In addition, this statement establishes statutory accounting principles for accounting for uncertainty in income taxes and defines recognition and measurement criteria that must be met for a reporting entity to recognize any benefit of any tax position in the reporting entity's financial statements. This statement provides statutory guidance on measurement, recognition, derecognition, reporting, interest and penalties, accounting in interim periods, disclosure, and transition.

The following is a brief summary of what will be changed if the draft is adopted in its current form:

1. The recognition of uncertain tax positions will be required for statutory insurance accounting purposes for tax positions taken.
2. The first part of the three-part admission test will now mirror the SSAP-10R version of the test in 10(e)(i) of SSAP 10R for all companies. (Generally this means the reversal period for temporary differences related to ordinary income items for all companies will be three years.)
3. Paragraphs 10(b)(i)(ii) and 10(e)(ii)(a)(b) will be replaced by paragraph 30(b)(i)(ii) and will incorporate the tables for determination of admitted tax assets under paragraph 30(b).
4. Enhanced requirements and tests regarding tax planning strategies.
5. Enhanced and expanded disclosures.

This exposure draft of SSAP 101 will continue to garner attention by all, with comments due back to the NAIC by April 28, 2011. Blackman Kallick will provide a more complete explanation of all of the additions and revisions when the final version is approved by the NAIC. Again, the proposed effective date of this new SSAP is January 1, 2012.

For additional information about SSAP 101, Income Taxes, a Replacement of SSAP 10R and SSAP 10 please contact Doug Youngren at dyoungren@BlackmanKallick.com or 312-980-2944,  Jeff Dertz at jdertz@BlackmanKallick.com or 312-980-3224, Jerry Hufton at jhufton@BlackmanKallick.com or 312-980-2961, or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.