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Additional Income Tax Disclosures Proposed

The Financial Accounting Standards Board (“FASB”) wants to increase the disclosure requirements for income taxes. In its Proposed Accounting Standards Update, Income Taxes (Topic 740): Disclosure Framework – Changes to the Disclosure Requirements for Income Taxes, the FASB recommends all entities add the following disclosures:

  • An explanation of a tax law amendment that is likely to impact the entity in a later period.
  • Income or losses from ongoing operations previous to income tax expenses or benefits separated between domestic and foreign.
  • Income tax expenses or benefits from ongoing operations separated between domestic and foreign.
  • Income taxes paid separated between domestic and foreign, and the sum of income taxes paid to any country substantial to amount of income taxes paid.
  • A description of situations that triggered a change in assertion on the indefinite reinvestment of undistributed foreign earnings, and the subsequent total of such earnings.
  • The total amount of cash, cash equivalents, and marketable securities by foreign subsidiaries.

The FASB also proposes the following disclosures for public entities:

  • In the reconciliation of the sum of unrecognized tax benefits at the period’s beginning and end, settlements with existing deferred tax assets independent from those settled in cash.
  • The line items in the statement of financial position wherein the unrecognized tax benefits are disclosed and the associated amounts of those unrecognized tax benefits. If not presented in the statement of financial position, the unrecognized tax benefits should be reported separately.
  • A description of the total valuation allowance acknowledged and/or distributed in the reporting period.
  • The sum of unrecognized tax benefits that counterbalances the deferred tax assets for carryforwards.

Additionally, the proposed changes would modify the current rate reconciliation requirement for public entities to be line with Securities and Exchange Commission (“SEC”) Regulation S-X 210.4-08(h), Rules of General Application – General Notes to Financial Statements: Income Tax Expense. The SEC requires a separate disclosure for a reconciling item that totals over five (5) percent of the calculated amount by multiplying the income prior to tax by the statutory federal income tax rate. The FASB’s modifications to the requirement would help clarify the changes in such items from year to year.

Comments on the proposal are due Friday.

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