By: George M. Wilson, SEC Institute
On January 10, 2018, the FASB met to begin addressing several of the more complex accounting implications of the Tax Act. Their first formal meeting in this area addressed accounting for tax issues stranded in AOCI and five other accounting challenges in the ACT.
Tax Effects “Stranded” in AOCI
The FASB decided to start a narrow-scope project for tax effects “stranded” in AOCI. For example, if a company has available-for-sale securities the change in fair value and the related tax effect both are recorded in AOCI. Existing GAAP requires that revaluation of these tax effects should go through tax expense in the period of enactment. This can seem a bit “out-of-period.” The Board’s project is expected to move very quickly, with a 15-day comment period and provisions for early adoption for this year.
The FASB Staff presented position papers dealing with five other issues to the Board. Based on discussions in the meeting an FAQ document will be prepared and presented at the January 18, 2018, EITF meeting for the first four issues below. The last issue, dealing with private companies and not-for-profits, will be addressed in an FAQ document expected to be posted on the FASB’s webpage.
Issue One – Should a company discount the tax liability on a deemed repatriation?
The tax liability on deemed repatriations may be paid over an eight-year period. The staff’s position, briefly summarized, was that since under current GAAP deferred tax assets and liabilities are not discounted this liability should not be discounted.
Issue Two – Should a company discount alternative minimum tax credits that become refundable?
The staff’s position here was similar to issue one (i.e., that the amounts should not be discounted).
Issue Three – Is the new base erosion anti-abuse tax (BEAT) a separate tax
The staff analogized to the old AMT and suggested accounting for GILTI as we did for the AMT.
Issue Four – How should companies account for global intangible low-taxed income (GILTI);
This new tax provision presents a very complex issue about whether it should be accounted for in future periods or as a deferred tax item. The staff presented views that both positions could be supported and that perhaps a policy election with appropriate disclosure would be an appropriate path forward. The need for future standard setting will also be considered.
Issue Five – Should private companies and not-for-profit entities be allowed to use the guidance in SEC Staff Accounting Bulletin 118 if they cannot complete their accounting for the new tax law before relevant financial reporting deadlines?
The staff’s position, with which the board agreed, was that use of SAB 118 by these entities would “not be objected to.”
All of the above discussions have next steps, particularly the narrow-scope project for stranded tax effects and the actual drafting of the FAQs, so stay tuned!
As always, your thoughts and comments are welcome!