The FASB issued ASU 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes in attempts to simplify certain aspects of accounting for income taxes. The ASU removes certain exceptions to existing guidance and adds provisions that clarify or simplify current guidance.
The exceptions that have been removed are the following:
Exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items.
Exceptions related to requirements or abilities to recognize a deferred tax liability for when a foreign subsidiary becomes an equity method investment or vice versa.
Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.
The additional provisions that have been added are the following:
Requiring an entity to recognize a franchise tax that is partially based on income in accordance with Topic 740 and account for any non-income-based incremental amount incurred as a non-income-based tax.
Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination and when it should be considered a separate transaction.
Specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements, but that the entity may elect to do so for a disregarded entity for tax purposes.
Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.
Minor improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.
The provisions of this ASU are effective for public business entities for fiscal years beginning after December 15, 2020. For all other entities, the provisions are effective for fiscal years beginning after December 15, 2021. Early adoption of this ASU is allowed for any financial statements that have not yet been issued. All provisions are required to be adopted in the same period. The method of adoption (retrospective, modified retrospective and prospective) varies based on the provision adopted.
The full text of ASU 2019-12 is available here.
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