Treasury & IRS Issue Favorable Guidance on Income Inclusion Rule

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The IRS recently issued Notice 2018-80, Guidance Under Section 451(b) Relating to Market Discount, expressing its intent to issue future guidance on Internal Revenue Code (IRC) Section 451(b)’s “income inclusion” rule.

The income inclusion rule essentially mandates income be included in a taxable year no later than it’s recognized for financial reporting purposes, with certain exclusions. Most insurance companies have historically deferred bond market discount until sale or redemption. When the Tax Cuts and Jobs Act was enacted, it wasn’t clear whether this new rule would require a taxpayer to change its tax accounting method to include market discount in taxable income currently.

The notice states “The Treasury Department and the IRS intend to issue proposed regulations providing accrued market discount is not includible in income under section 451(b).”

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