The FASB has issued an Exposure Draft which attempts to simplify certain aspects of accounting for income taxes. The proposal would remove certain exceptions to existing guidance and would also add provisions that would seek to clarify or simplify current guidance.
The exceptions that would be removed as a result of the proposal are as follows:
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 would be 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.
An effective date for these proposed amendments will be determined after the FASB gathers feedback from stakeholders. Each provision would be applied either retrospectively, on a modified retrospective basis, or prospectively as prescribed for each individual provision as noted in the Exposure Draft.
The FASB is seeking comments on these proposed changes until June 28, 2019. The full text of the Exposure Draft is available here.
Readers should not act upon information presented without individual professional consultation.