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Tax Executives Institute Asks for Clarification of Tax Disclosure Rules in Wake of Recent Tax Reform

Some accounting and tax professionals want the FASB to clarify the reporting and disclosure guidance for income taxes from the tax overhaul signed into law by President Donald Trump in December. Tax Executives Institute told the board it was particularly concerned about the accounting requirements for the base erosion anti-abuse tax and whether it should be accounted for similarly to the now-defunct corporate Alternative Minimum Tax (AMT).

The FASB’s January 10, 2018, meeting is scheduled to address the question of whether the board needs to amend the income tax accounting guidance in U.S. GAAP to ease the implementation of the many changes from the Tax Cuts and Jobs Act.

Two of the issues on the agenda — items the FASB has characterized as interpretive questions — could be of great importance, Tax Executives Institute (TEI) wrote to the accounting board on January 8.

TEI wants the FASB to act swiftly to clear up several reporting questions about a new corporate minimum tax called the base erosion anti-abuse tax (BEAT) and the new global intangible low-taxed income (GILTI) regime. The group, which did not respond to a request for comment by press time, encouraged the FASB to issue guidance clarifying that the BEAT’s effects should be accounted for in the period in which they arise rather than as part of a separate parallel tax regime.

“We believe the BEAT is analogous to the now-repealed corporate Alternative Minimum Tax (AMT), and we urge the FASB to issue guidance adopting disclosure rules for the BEAT that are similar to those applicable to the AMT,” TEI wrote. A different interpretation could result in earnings volatility, “counter-intuitive financial statement results, and the risk of misleading users of financial statements,” TEI wrote.

“It’s not exactly a surprise that the BEAT would be analogized to the AMT since the calculation of the two follows the same principles,” Tax consultant Robert Willens wrote in an email to Accounting & Compliance Alert.

TEI also asked the FASB to issue guidance that allows for flexibility in reporting the financial effect of the GILTI regime, a new provision aimed at foreign income subject to low effective tax rates. Businesses and auditors have asked the FASB whether the GILTI’s effects should be included in the future period the tax arises or whether it should be reflected as part of deferred taxes on related investments. In some cases, a company may need to record deferred taxes related to the new regime, but in other cases, it may not, TEI said.

The tax changes, signed into law by President Donald Trump on December 22, 2017, are the biggest revisions to the U.S. tax code in 30 years. One of the most significant changes in the law is the reduction of the corporate income tax rate to 21 percent from 35 percent.

Topic 740, Income Taxes, requires businesses to adjust the value of deferred tax assets and liabilities upon enactment of a new tax law. Changes must be presented in current earnings, even when the corresponding deferred taxes relate to items presented in accumulated other comprehensive income. Items such as pension adjustments, gains or losses on cash flow hedges, and foreign currency translation adjustments, are typically recorded in other comprehensive income.

In recent weeks, bankers and insurers have asked the FASB to address their concerns about the consequences of adjusting the deferred tax assets and liabilities in other comprehensive income even though several years may elapse before the tax payments come due or the tax refunds get cashed.

The American Bankers Association, some banks, and several insurance trade groups called on the FASB to allow the use of “backwards tracing,” which would allow businesses to record the effect of the tax rate change on items recorded in OCI in OCI itself.

The FASB plans to discuss the financial companies’ request at the January 10 meeting. If the FASB agrees to make a change, it will have to float a proposal for public comment before making a formal update to U.S. GAAP. (See Tax Law May Lead to Changes in U.S. GAAP in the January 8, 2018, edition of Accounting & Compliance Alert.)

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