FASB proposes simplifying accounting for income taxes

By Ken Tysiac

Rules for accounting for income taxes would be simplified under a proposal issued Tuesday by FASB that is designed to reduce cost and complexity.

The proposed Accounting Standards Update would remove specific exceptions to the general principles in FASB ASC Topic 740, Income Taxes, under GAAP.

Under the proposal, an organization would no longer need to analyze whether the following apply in a given period:

  • The 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;
  • The exceptions to accounting for basis differences when there are ownership changes in foreign investments; and
  • The exception in interim period income tax accounting when year-to-date losses exceed anticipated losses.

The proposal 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 proposal would not create new accounting requirements that are not previously included in Topic 740. Comments on the proposal are sought by June 28. The specific areas of potential simplification in the proposal were submitted by stakeholders who were seeking improvement.

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

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