New FASB standard aims to simplify accounting for income taxes

By Ken Tysiac

FASB issued a standard Wednesday that is intended to simplify accounting for income taxes.

The standard removes specific exceptions to the general principles in FASB ASC Topic 740, Income Taxes. In addition, the standard eliminates the need for an organization to analyze whether the following apply in a given period:

  • Exception to the incremental approach for intraperiod tax allocation.
  • Exceptions to accounting for basis differences when there are ownership changes in foreign investments.
  • Exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

The standard also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for:

  • Franchise taxes that are partially based on income.
  • Transactions with a government that result in a step-up in the tax basis of goodwill.
  • Separate financial statements of legal entities that are not subject to tax.
  • Enacted changes in tax laws in interim periods.

The standard takes effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2020. For all other entities, the amendments take effect for fiscal years beginning after Dec. 15, 2021, and interim periods within fiscal years beginning after Dec. 15, 2022.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is The Tax Adviser’s editorial director.

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