Defining Issues  |  May 2019

FASB proposes simplifications to accounting for income taxes

The FASB proposed removing certain exceptions and adding new guidance to reduce complexity in accounting for income taxes. The proposed amendments would change intraperiod allocation, interim period calculations, franchise tax accounting and deferred tax liability recognition guidance when ownership changes.

Applicability

Proposed ASU

  • All entities subject to income taxes

Relevant dates

  • May 14, 2019 – FASB issued proposed ASU
  • June 28, 2018 – Comments due on proposed ASU

Key impacts

  • When allocating total income tax expense or benefit to a loss in continuing operations, entities would no longer consider gains reflected outside continuing operations
  • Entities that pay a franchise tax with an income tax component would first account for the income tax component under ASC 740 and then account for any incremental non-income-based tax as incurred
  • Interim period calculations would be simplified by requiring companies to (1) reflect a change in tax law in the estimated annual effective tax rate in the period of enactment, and (2) recognize the tax benefits of a year-to-date loss regardless of whether that loss exceeds the anticipated annual loss
  • Exceptions would be eliminated for deferred tax liability recognition or derecognition when an investor in a foreign entity transitions in or out of the equity method of accounting 

The proposed ASU also would make other less significant changes:

  • Providing a policy election for allocating consolidated income taxes when a subsidiary is not subject to income tax
  • Adding new guidance on accounting for increases in tax goodwill after the business combination date
  • Changing the measurement of impairment of a qualified affordable housing project investment that is accounted for under the equity method
  • Clarifying the income statement classification of tax benefits associated with employee stock ownership plans

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