FASB Re-Examines Tax Disclosures

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One of FASB’s longest-running projects is finally heading to conclusion. An exposure draft to revamp income tax disclosures was issued in June 2016, and redeliberations continued throughout 2017. The project was put on hold due to the unprecedented scale of President Trump’s December 2017 enactment of the Tax Cuts and Jobs Act (TCJA), the first major tax reform in more than 30 years. The delay allowed companies to digest the tax changes and gave FASB time to consider additional updates in light of the TCJA legislation. Due to the elapsed time since the first exposure draft and the TCJA’s substantial relief, FASB felt re-exposure was appropriate. Based on the 2016 comments received, subsequent outreach and the tax changes, many of the initially proposed requirements were scaled back or eliminated. Significant changes are highlighted below, and comments are due by May 31, 2019.

Scope

This exposure draft carries forward the 2016 change that replaces the term “public entity” with “public business entity” (PBE) in Topic 740, Income Taxes, and differentiates disclosure requirements for PBEs and organizations other than PBEs. This terminology is consistent with the now-effective revenue recognition rules and newly effective lease guidance.

New Disclosures

The following disclosures would be required for all entities:

  • Income (or loss) from continuing operations before income tax expense (or benefit) and before intracompany eliminations, disaggregated between domestic and foreign
  • Income tax expense (or benefit) from continuing operations disaggregated between federal, state and foreign
  • Income taxes paid disaggregated between federal, state and foreign

Research indicated there is diversity in practice under the SEC requirements related to whether U.S. federal income taxes on foreign earnings should be included in foreign income taxes or federal income taxes. This proposal clarifies that tax expense and taxes paid on foreign earnings imposed by the entity’s jurisdiction of domicile, e.g., federal or state, should be included in the amount for that jurisdiction of domicile.

The following disclosures are required for PBEs only:

  • The line items in the balance sheet in which the unrecognized tax benefits are presented and the related amounts of such unrecognized tax benefits
  • The amount and explanation of the valuation allowance recognized and/or released during the reporting period
  • The total amount of unrecognized tax benefits that offsets the deferred tax assets for carryforwards
  • The amounts of federal, state and foreign carryforwards—tax-effected before any valuation allowance—by time period of expiration for each of the first five years after the reporting date, a total for any remaining years and a total for carryforwards that do not expire
  • The valuation allowance associated with the total tax-effected amounts of federal, state and foreign carryforwards

The following disclosure would be required for non-PBEs only:

  • The total amounts of federal, state and foreign credit carryforwards and the total amounts of other federal, state and foreign carryforwards (not tax-effected), separately for those carryforwards that do not expire and those that expire, along with their expiration dates (or a range of expiration dates)

No new disclosures are required for any provisions of the TCJA, including global intangible low-taxed income, the base erosion and anti-abuse tax or foreign-derived intangible income.

Disclosures Removed

The following disclosures would no longer be required for any entities:

  • Nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months or to make a statement that an estimate of the range cannot be made
  • The cumulative amount of each type of temporary difference when a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures

BKD will continue to follow developments on this topic. For more information on how these changes might affect your organization, contact your BKD advisor.

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