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Tax Cuts and Jobs Act

End of SAB No. 118 Grace Period May Lead to More Detailed Income Tax Disclosures

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The SEC’s interpretive guidance that lets companies use good faith estimates to adjust for the income tax effects of the Tax Cuts and Jobs Act expires at the end of the year. The market regulator is advising companies that once the grace period is over, they should be prepared to be compliant with the income tax reporting requirements in U.S. GAAP.

The same day as President Donald Trump signed into law the biggest change to the tax code in decades, the SEC’s staff issued guidance that let companies use “reasonable estimates” and “provisional amounts” to quantify the effects of the Tax Cuts and Jobs Act.

The guidance, issued on December 22, 2017, as SEC Staff Accounting Bulletin (SAB) No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, (Topic 5.EE) instituted a grace period that lets companies estimate the effects of the new tax law when complying with the financial reporting requirements of FASB ASC 740, Income Taxes , in their regulatory filings.

The grace period instituted in SAB No. 118 ends on the first anniversary of the TCJA’s enactment.

“After the SAB, you follow authoritative GAAP,” SEC Deputy Chief Accountant Sagar Teotia said during a September 25, 2018, meeting of the FASB’s Financial Accounting Standards Advisory Council (FASAC) in Norwalk, Connecticut.

“What we’ve stressed to protect investors is disclosures and give people the transparency around what disclosures are open,” Teotia said. “We continue to encourage folks to work through things in good faith. Those were, in our mind, two of the most important words in the SAB.”

FASAC Chair Andrew McMaster asked Teotia if the market regulator had fielded requests for a longer deferral than what was outlined in the staff accounting bulletin. Teotia said the regulator had not.

“I think people have made good progress,” he said. “I think a lot of people started with good progress, and we haven’t gotten questions.”

Teotia said the companies, generally, supplied more and better details about the effect of the TCJA over time.

For in-depth analysis of the FASB’s guidance for income tax reporting, please see Catalyst: US GAAP — Accounting for Income Taxes, also on Checkpoint.

Additional analysis of the financial reporting implications of the Tax Cuts and Jobs Act of 2017 can be found on Checkpoint in the Accounting and Auditing Update Service [AAUS No. 2018-01] (January 2018): Financial Reporting and Disclosure Implications of the Tax Cuts and Jobs Act of 2017 and the SEC Accounting and Reporting Update Service [SARU No. 2018-01] (January 2018): The Application of U.S. GAAP in Accounting for the Effects of the Tax Cuts and Jobs Act.

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