Accounting for the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act

On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act).

As a result of the Tax Cuts and Jobs Act, stakeholders provided feedback to the FASB on the following financial reporting issues:
 
  • Current Generally Accepted Accounting Principles (GAAP) requires that deferred tax liabilities and assets be adjusted for the effect of a change in tax laws or rates. That effect would be included in income from continuing operations in the reporting period that includes the enactment date of the change. Stakeholders in the banking and insurance industries submitted unsolicited comment letters to the FASB and expressed concerns with applying this guidance to deferred tax liabilities and assets related to items presented in accumulated other comprehensive income (OCI). 
  • Implementation issues related to the Tax Cuts and Jobs Act and income tax reporting:
    • If private companies and not-for-profits can apply SEC Staff Accounting Bulletin (SAB) 118
    • Whether to discount the tax liability on the deemed repatriation
    • Whether to discount alternative minimum tax credits that become refundable
    • Accounting for the base erosion anti-abuse tax
    • Accounting for global intangible low-taxed income

HOW IS THE FASB ADDRESSING ACCOUNTING ISSUES FROM THE ACT?

On February 14, 2018, the FASB issued an Accounting Standards Update (ASU) that helps organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act. The ASU provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.
 
The ASU requires financial statement preparers to disclose:
  • A description of the accounting policy for releasing income tax effects from AOCI
  • Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act, and
  • Information about the other income tax effects that are reclassified. 
The amendments in this ASU affect any organization that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.
 
The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.
 
The proposed ASU can be found here, and the press release announcement can be found here.

The final ASU can be found here, and the press release announcement can be found here.

 

HOW IS THE FASB ADDRESSING RELATED IMPLEMENTATION ISSUES?

The FASB staff issued five Staff Q&A documents that address various financial accounting and reporting implementation issues related to the Tax Cuts and Jobs Act.
 
The Staff Q&As address the following topics:
  1. Whether Private Companies and Not-for-Profits Can Apply SAB 118, PDF version here
  2. Whether to Discount the Tax Liability on the Deemed Repatriation, PDF version here
  3. Whether to Discount Alternative Minimum Tax Credits That Become Refundable, PDF version here
  4. Accounting for the Base Erosion Anti-Abuse Tax, PDF version here
  5. Accounting for Global Intangible Low-Taxed Income, PDF version here