FASB Issues Standard to Improve Accounting for Income Taxes

Norwalk, CT, December 18, 2019—The Financial Accounting Standards Board (FASB) today issued an Accounting Standards Update (ASU) expected to reduce cost and complexity related to accounting for income taxes.

The ASU removes specific exceptions to the general principles in Topic 740—Income Taxes in Generally Accepted Accounting Principles (GAAP). It eliminates the need for an organization to analyze whether the following apply in a given period:

• Exception to the incremental approach for intraperiod tax allocation
• Exceptions to accounting for basis differences when there are ownership changes in foreign investments, and
• Exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. 

The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: 

• Franchise taxes that are partially based on income
• Transactions with a government that result in a step up in the tax basis of goodwill
• Separate financial statements of legal entities that are not subject to tax, and
• Enacted changes in tax laws in interim periods. 

The ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects.
 
The ASU is available at www.fasb.org.