FASAB seeks transparency on tax expenditures

By Ken Tysiac

The Federal Accounting Standards Advisory Board (FASAB) proposed a standard Thursday with the intention of providing the public more information about the U.S. government’s tax expenditures.

FASAB defines tax expenditures as provisions in the tax law available to subsets of taxpayers who engage in certain activities, face special circumstances, or meet specified criteria. They include deductions, credits, and other tax provisions used by the government to encourage behavior that will accomplish public policy goals such as facilitating home ownership, reducing the cost of borrowing for state and local governments, and encouraging higher education and domestic energy production.

Proposed Statement of Federal Financial Accounting Standards, Tax Expenditures: Management’s Discussion and Analysis and Disclosure Requirements, is designed to improve financial statement users’ awareness and understanding of tax expenditures.

The proposal is designed to require the consolidated financial report of the U.S. government to include information to assist users in understanding the existence, purpose, and impact of tax expenditures on federal revenues and the overall financial position of the federal government.

“The financial impact of tax expenditures clearly warrants their disclosure in the financial statements; however, that was not the main driver for this proposed standard,” FASAB Chairman Scott Showalter said in a news release. “The government can and does use tax expenditures as an alternative to other policy instruments—such as spending or regulatory programs—to address and hopefully accomplish policy objectives. Because tax expenditures are not explicitly reported as appropriations or displayed in the statements of net cost or changes in net position, we need to shine a light on them.”

The proposal would provide financial statement users with a more complete understanding of the service efforts, costs, and factors affecting federal revenues, Showalter said.

FASAB is requesting comments on the exposure draft by Sept. 15. Comments can be emailed to fasab@fasab.gov.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

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