LUTZ BUSINESS INSIGHTS
Reporting the Effects of Tax Reform
The Financial Accounting Standards Board (FASB) continues to monitor how companies and their auditors are tackling the financial reporting ramifications of the major new provisions of the Tax Cuts and Jobs Act (TCJA). For now, no new guidance is in the works, though some uncertainty remains regarding the global intangible low-taxed income (GILTI) regime, the base erosion and antiabuse tax (BEAT) and realization of deferred tax assets.
New tax rules
Signed into law on December 22, 2017, the TCJA ushered in some of the biggest changes to federal tax law in decades. Provisions that are expected to have major effects on businesses include:
- Replacement of graduated corporate income tax rates ranging from 15% to 35% with a flat 21% rate,
- Repeal of the corporate alternative minimum tax (AMT),
- A new 20% deduction for qualified business income for so-called “pass-through” entities,
- Expansion of bonus depreciation and the first-year Section 179 expense deduction,
- Increased annual gross-receipts thresholds for eligibility to use certain simplified tax accounting methods,
- Elimination of the Section 199 deduction,
- Repeal of the earnings stripping rules,
- New limits on interest expense deductions, with several exceptions, and
- New limits on net operating loss (NOL) deductions.
The TCJA also introduced the GILTI regime, which imposes a tax on foreign income in excess of the deemed returns on the tangible assets of foreign corporations. In addition, it created the BEAT, which companies must pay if it is greater than their expected tax liability.
In January 2018, the FASB scrambled to address some of the most pressing questions about the new tax law. The FASB’s website featured a Q&A document that covered queries about the BEAT and GILTI. The document clarified that companies shouldn’t discount the liability on the deemed repatriation of earnings or AMT credits that become refundable.
For the most part, FASB research staff have found that companies and accountants have figured out the financial reporting implications of the tax law change. But many are awaiting guidance or updates from the IRS. In addition, questions about accounting for GILTI persist.
For GILTI, the FASB received inquiries on whether deferred tax assets and liabilities should be recognized for basis differences expected to reverse as GILTI in future years, or if the tax on GILTI should be included in tax expense in the period in which it’s incurred. The FASB’s Q&A document indicates that FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, could allow either interpretation, depending on the facts and circumstances.
Many businesses are also unsure when to realize deferred tax assets from NOLs. Under one view, a business would follow the tax law ordering rules to determine whether existing deferred tax assets are expected to be realized.
Under a second interpretation, a business would apply what the FASB calls a “with-and-without approach” to determine whether the deferred tax asset would be realized. This means the business would compare what it expects its tax expense to be after using the NOL with what it expects its tax expense to be without using the NOL.
“The staff concluded [ASC Topic 740] is not clear and nothing would preclude them from applying either approach,” FASB fellow Jason Bond said.
Stakeholders also asked about a method, or framework, for how to recognize deferred tax assets and liabilities for the basis differences expected to affect the amount of GILTI inclusion upon reversal.
“The FASB concluded the framework is not inconsistent with the guidance,” a FASB research staff member said. “The framework could be one acceptable approach for recognizing deferred taxes on GILTI.”
Staying the course
The FASB will continue to monitor income tax reporting under the TCJA. The door remains open to take action in the future, if necessary, particularly on accounting for and disclosing the effects of the foreign tax provisions.
©2019 THOMSON REUTERS
Job interviews are typically the first step in the job seeking process and it is important to make a great first impression. However, you (as the candidate) shouldn’t be the only one responding to all the questions…read more
If you’re still doing your accounting on paper, you know how challenging it is to create reports. You might be able to cobble together a simple report using Excel, but even that takes time and skill…read more
Lutz, a Nebraska-based business solutions firm, welcomes Joe Carlson to its Omaha office’s financial division. Joe joins Lutz Financial as a Financial Planner. He is responsible for assisting Lutz Financials’ advisers…read more
SIGN UP FOR OUR NEWSLETTERS!
We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.
13616 California Street, Suite 300
Omaha, NE 68154
747 N Burlington Avenue, Suite 401
Hastings, NE 68901
601 P Street, Suite 103
Lincoln, NE 68508
3320 James Road, Suite 100
Grand Island, NE 68803