financial reporting
Revised Presentation Requirements for Unrecognized Tax Benefits By AARON SULLIVAN | manager
ASullivan@SingerLewak.com | 310.477.3924
ASU 2013-11: Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). The Financial Accounting Standards Board (“FASB”) recently issued guidance on the presentation of unrecognized tax benefits in cases when companies have net operating losses or tax credits carried forward. The amendment was issued to address the fact that there is currently diversity in practice among companies in this position. This diversity resulted from a lack of explicit guidance in the FASB’s original pronouncement Topic 740, Income Taxes. Certain companies present unrecognized tax benefits as a liability, unless the benefit is directly associated with a position taken in a year that results in the recognition of the net operating loss or tax credit carry forward for that year and the carryforward has not been used.
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from the disallowance of a tax position under tax law
Other companies present the unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss or credit carryforward. Prese ntation re quire d In order to promote comparability across financial statements, the FASB will now require companies to present an unrecognized tax benefit, or portion thereof, for a net operating loss or tax credit carryforward as a reduction of a deferred tax asset. As with most guidance, there are exceptions. In either of the following instances the unrecognized tax benefit should be presented as a liability instead of reducing a deferred tax asset: The net operating loss or tax credit carry forward is not available at the reporting date to settle additional taxes that would result
October 2013
Tax law does not require the company to use the net operating loss or credit carried forward to settled additional taxes resulting from the disallowance of the tax position and the company does not intend to use the loss or credit thus. Effe ctiv e date For public filers this update is effective for fiscal years, and interim periods within those years beginning after December 15, 2013. The update is effective a year later for private companies for periods beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date and retrospective application is permitted. Inte rnational Financ ia l Re porting Standards ( IFRS) comparison IFRS does not include comparative guidance regarding the presentation of unrecognized tax benefits.