Government Accounting


FASAB ED Addresses Taxes-Receivable Standard

In November the Federal Accounting Standards Advisory Board released an exposure draft, Elimination of Disclosures Related to Tax Revenue Transactions by the Internal Revenue Service, Customs, and Others, Amending Statement of Federal Financial Accounting Standards No. 7, Accounting for Revenue and Other Financing Sources, that proposes doing away with the current requirement—in paragraph 65.2 of Statement no. 7—to disclose information about taxes receivable in a footnote to financial statements. The board has concluded that implementing its provisions will be time-consuming and costly for the preparer and the auditor and proposes to rescind it.

Statement no. 7, which this ED would amend, became effective for fiscal year 1998 and included provisions for collecting federal taxes. In November 1998 the board issued an exposure draft proposing to delete paragraph 65.2. Reaction was mixed: Some respondents said deleting the paragraph lacked any cost benefit, while others said additional explanatory material was needed. In January 1999 FASAB issued Statement no. 13, Deferral of Paragraph 65.2—Material Revenue-Related Transactions Disclosure, deferring the effective date of the paragraph until October 1, 2000.

Statement no. 7 applies predominantly to two entities that collect a major portion of federal taxes—the IRS and the U.S. Customs Service. The disclosures it requires, according to the board, do not reconcile account balances and would mislead people attempting to evaluate the performance of the IRS, Customs or the Bureau of Alcohol, Tobacco and Firearms (ATF) in collecting taxes receivable.

The board added that the disclosures include compliance activity that precedes the recognition of taxes receivable. Robert W. Bramlett, assistant director at the FASAB, provides an example of one such compliance activity: When the IRS tries to get a taxpayer to pay his or her overdue taxes, it sometimes assesses the amount it thinks is owed even though the taxpayer has not filed a return. In some cases, the IRS may assess multiple parties for the same taxes due—for example, officers in a corporation or partners in a company or firm. These assessments are legally enforceable claims but they differ from accounts receivable in that, if the IRS, for example, decides to assess three or four individuals for a million dollars, the particular person liable for—and able to pay—the taxes due will have to be determined and recognized for enforcement.

The FASAB said it still would require certain supplementary information on compliance assessments, pre-assessment work in process, claims for refunds, and writeoffs. Bramlett said among the arguments for eliminating paragraph 65.2 of Statement no. 7 are that it duplicates “required supplementary information” and it has a different audit status.

The FASAB requests written comments by February 16, 2001. For details, go to the Web site, www.financenet.gov/financenet/fed/fasab .

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