Companies Get Clarifications on Accounting for Various Tax Issues

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By Denise Lugo

Companies subject to taxes on post-1986 foreign earnings won’t have to discount the tax liability on those earnings for the time value of money, U.S. accounting rulemakers said Jan. 22.

The clarification was part of a document issued by FASB to address technical questions companies raised when applying current accounting for income taxes and imputation of interest, to the Tax Cuts and Jobs Act.

The Act (Pub. L. No. 115-97) permits a company to pay a one-time transition repatriation tax over eight years on an interest free basis. Under today’s accounting rules, companies have to record the liability they expect to pay on the balance sheet.

In applying the rules, companies questioned whether to discount the tax liability on the deemed repatriation of earnings.

The Financial Accounting Standards Board said that the deemed repatriation of earnings shouldn’t be discounted because today’s rules under ASC 740, Income Taxes prohibits the discounting of deferred tax amounts.

The board said due to the unique nature of the tax on the deemed repatriation of foreign earnings, the same guidance should be applied by analogy to what’s recognized for this tax. Accounting rules on the imputation of interest don’t apply to the unique circumstances related to this tax liability, FASB said.

The board also provided answers to the following questions:

  •  Whether to discount alternative minimum tax credits that become refundable;
  •  Whether deferred tax assets and liabilities should be measured at the statutory tax rate of the regular tax system or the lower Base Erosion Anti-Abuse Tax (BEAT) tax rate if the taxpayer expects to be subject to BEAT;
  •  Whether a company should recognize deferred taxes for temporary basis differences expected to reverse as global intangible low-taxed income (GILTI) in future years or should the tax on GILTI be included in tax expense in the year it is incurred;
  •  If private companies and not-for-profits can apply SEC Staff Accounting Bulletin 118.

To contact the reporter on this story: Denise Lugo in New York at dlugo@bloombergtax.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bloombergtax.com

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