FASB Simplifies Income Tax Accounting
December 19, 2019
The FASB has issued Accounting Standards Update (ASU) No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its simplification initiative (i.e., its effort to reduce the complexity of accounting standards).
The ASU eliminates certain exceptions to the general principles in ASC 740, Income Taxes. Specifically, it eliminates the exception to:
- The “incremental approach for intraperiod tax allocation.”
- The “requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment.”
- The “ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary.”
- 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 ASU also simplifies GAAP by making other changes, including requiring an entity:
- To “recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax.”
- To “evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.”
For more information, see the press release and ASU on the FASB’s Web site.