Global Tax Alert | 20 December 2017

US tax reform: A guide to income tax accounting considerations

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Overview of recent developments

On 15 December 2017, the United States (US) House and Senate conferees to the Tax Cuts and Jobs Act (H.R. 1) signed, and released, a conference agreement that is expected to be considered by the full House and Senate. Assuming it passes Congress, President Trump will sign the bill before year-end. The enactment of H.R. 1 would be the first major overhaul of the federal income tax code in more than 30 years and could become the Trump Administration’s most significant legislative achievement.

From a financial reporting perspective, the enactment of H.R. 1 would require companies, under Accounting Standards Codification (ASC) 740, Income Taxes, to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws (including the one-time transition tax discussed later) in the period in which the new legislation is enacted. The enactment date in the US is the date the bill becomes law, which is when the President signs the bill. Under US Generally Accepted Accounting Principles (GAAP), these financial statement effects of changes in tax law are recorded as a discrete item and part of tax expense or benefit in continuing operations, regardless of the category of income or loss to which the deferred taxes relate. Under International Financial Reporting Standards (IFRS), the tax effects related to deferred taxes must be backwards traced to the component of income to which they relate.

While stressing the importance of timely financial reporting at the 2017 AICPA Conference on Current Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) Developments, the SEC staff acknowledged the challenges companies will face incorporating the effects of tax reform by their financial reporting deadlines. The SEC staff said it will consider the need for action on its part and welcomed input from companies and practitioners in determining a framework for granting some form of relief from the immediate accounting required upon enactment. At this time, a final decision concerning relief in the required accounting has not been announced.

For a detailed discussion of this Alert, please download the PDF version.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, Tax Accounting and Risk Advisory Services
  • Angela Evans, Atlanta
  • Joan Schumaker, New York
  • Anya Parkhurst, Atlanta
  • Dan Petrak, Akron
  • David Northcut, Dallas
  • George Wong, New York
  • Jason Zenk, McLean
  • John M. Wright, New York
  • John Vitale, New York
  • Matt Rychlicki, Houston
  • Paul Caccamo, Miami
  • Peter DeVisser, Raleigh
  • Ricci Obert, Colombus
Ernst & Young LLP, International Tax Services, Houston
  • Jennifer Cobb

EYG no. 07168-171Gbl