FASB addresses stranded income tax effects of new tax law

By Ken Tysiac

FASB issued an Accounting Standards Update on Wednesday that is designed to help organizations address certain stranded income tax effects in accumulated other comprehensive income resulting from P.L. 115-97, known as the Tax Cuts and Jobs Act.

Under the new FASB rules, financial statement preparers are provided an option to reclassify stranded tax effects within accumulated other comprehensive income in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.

The update requires financial statement preparers to disclose:

  • A description of the accounting policy for releasing income tax effects from accumulated other comprehensive income.
  • Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act.
  • Information about the other income tax effects that are reclassified.

The amendments apply to any organization that is required to apply the provisions of FASB Accounting Standards Codification Topic 220, Income Statement — Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.

The new rules take effect for all organizations for fiscal years beginning after Dec. 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied in either the period of adoption or retrospectively to each period (or periods) in which the effect of the change in federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

FASB moved quickly following the enactment of the Tax Cuts and Jobs Act to provide financial statement preparers with answers to the accounting difficulties created by the law, which was enacted in December. The board has also posted numerous staff Q&As to help preparers handle the effects of the new law.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.

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