HOW WILL IT IMPACT YOU? 

On March 25, 2019, the FASB issued a proposed ASU to modify, eliminate, or establish new disclosure requirements related to income taxes.  The proposed guidance, which is part of the Board’s disclosure framework project, is intended to increase the relevance of income tax disclosures for financial statement readers.  Any changes from the proposed ASU will be applied prospectively.  An effective date and early adoption guidelines have not been set.

Key Changes Recommended by the Proposed ASU

The proposed ASU is a revised version of the FASB’s July 2016 exposure draft on changes to the income tax disclosure requirements.  The Board discussed stakeholder feedback on the initial exposure draft in January 2017 and again in November 2018, when it also assessed whether updates would be needed as a result of the Tax Cuts and Jobs Act.  The following are the key disclosure changes from current guidance being contemplated in the ASU:

Disaggregation

  • Pretax income/loss from continuing operations disaggregated between domestic and foreign
  • Income tax expense/benefit from continuing operations disaggregated between domestic and foreign
  • Income taxes paid disaggregated by foreign and domestic amounts

Uncertain Tax Positions

  • Public companies would be required to provide a breakdown/mapping of the amount of total uncertain tax positions shown in the tabular rollforward to their respective balance sheet line(s).
  • Would remove the requirement to disclose the details of tax positions for which it is reasonably possible that the total amount of uncertain tax positions will significantly increase or decrease in the next 12 months.

Valuation Allowances

  • Public companies will need to explain any valuation allowance recognized or released during the year, along with the corresponding amount

Rate Reconciliation

  • Codification of the SEC requirement (SEC Regulation S-X, Rule 4-08(h) for public companies to disclose the income tax rate reconciliation consistent with the current SEC Regulation. However, the requirement to disaggregate and separately present components in the rate reconciliation that are greater than 5% of the tax at the statutory rate may be modified.  The FASB has questioned whether the 5% threshold is an appropriate threshold given the decrease to the US statutory rate as a result of the US tax reform enacted in December 2017.

Tax Attribute Carryforwards

  • Companies would have to disclose the tax effected amounts of federal/national, state and foreign net operating loss/tax credit carryforwards, along with the valuation allowance associated with such amounts.
  • Non-public companies would also have to disclose the total non-tax effected carryforwards (federal, state and foreign) separately for those carryforwards that expire, along with their expiration dates or rage of expiration dates, and those that can be carried forward indefinitely.

Indefinitely Reinvested Foreign Earnings

  • Removal of existing requirement under ASC 740-30-50-2(b) to disclose 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 venture.”
  • Does not eliminate the existing requirements to disclose the amount of unrecognized DTL related to investments in foreign subsidiaries/corporate joint ventures that are essentially permanent in durations, or provide a statement that determination of such DTL is not practicable.

Interim Reporting

  • Additional requirement to disclose income taxes paid for all interim periods presented

STATUS UPDATE

Comments on the proposed ASU were due on May 31, 2019 are the FASB is currently in re-deliberations.  No time tables have been announced for the FASB to release a final version of the ASU.

WHAT TO DO NEXT?

We are happy to discuss the impacts the proposed FASB ASU may present for your organization. Please reach out to Joel Gardosik (617-620-9705, jgardosik@cfgi.com) or Mark Gauthier (978-273-8457, mgauthier@cfgi.com) if you have any questions.