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 January 18, 2017, the FASB issued a proposed Accounting Standards Update (ASU) intended to help organizations reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017.
 
The proposed ASU requires financial statement preparers to reclassify stranded tax effects within accumulated other comprehensive income 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 of 2017 (or portion thereof) is recorded. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate.
 
In the period of the reclassification, organizations would make the following transition disclosures:
  • The nature and reason for the change in accounting principle
  • A description of the prior-period information that has been retrospectively adjusted, and
  • The effect of the change on affected financial statement line items. 
The proposed amendments would be effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption would be permitted. Organizations would apply the proposed amendments 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 of 2017 is recognized.
 
Stakeholders are encouraged to review and provide comments on the proposed improvements by February 2, 2018.
 
The proposed 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 developed a Staff Q&A document on whether private companies and not-for-profit organizations can apply U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 118. The FASB staff consulted with stakeholders and members of the Private Company Council in forming the view contained in the Staff Q&A.

The Staff Q&A can be found here, and the PDF version can be downloaded here.