Current Practice Issue - Impact Of Fiscal Cliff Legislation: The American Taxpayer Relief Act Of 2012

Author:Ms Grant Thornton's Audit Practice Group
Profession:Grant Thornton LLP

President Obama signed into law a last-minute compromise on January 2 that settles many unresolved fiscal cliff tax issues, extending some of the 2001 and 2003 tax cuts and making others permanent. Among the provisions extended through 2013 by the American Taxpayer Relief Act of 2012 are

The research tax credit, including retroactive extension of the credit to 2012 A variety of other general business credits, including the Work Opportunity Tax Credit and New Markets Tax Credit Bonus depreciation for qualified property Certain international provisions and exceptions, including the Subpart F exception for active financing income and the look-through rule for related controlled foreign corporation payments, potentially impacting an entity's position on permanent reinvestment foreign earnings Accounting for tax law changes

To account for the new tax law changes, entities would apply the guidance in FASB Accounting Standards Codification® (ASC) 740-10-45-15, Income Taxes. Under this guidance, an entity records the effects of an enacted tax law or rate change on deferred tax accounts in the period that includes the enactment date, which is the date a tax bill becomes law. Do not confuse the enactment date with the effective date, as many tax rate changes do not take effect immediately, but at either a future date (a prospective change) or a past date (a retroactive change).

In addition, the guidance in ASC 740-10-30-8 through 30-9 requires an entity to measure a deferred tax liability or asset using the enacted tax rate(s) that will apply to taxable income in the periods the deferred tax item is expected to be settled or realized.

Financial statement impact

Because the act was not signed into law until 2013, for calendar-year taxpayers, the provisions that expired, such as the research tax credit, will not be considered in calendar-year 2012 financial accounting for income taxes. Instead, the 2012 and 2013 impact of these extended provisions will be reflected in tax accounts for the period that includes January 2, 2013. In other words, income taxes included in periods ending on or before January 1, 2013 would be determined as if the act had not been enacted.

Entities should consider enhancing financial statement disclosures to include additional discussion of the impact of the act on income tax accounts.


All decisions reached at Board meetings are tentative and may be changed at future meetings. Decisions are included in an Exposure Draft only after a formal written ballot. Decisions reflected in Exposure Drafts are often changed in redeliberations by the Board based on information received in comment letters, at public roundtable discussions, and from other sources...

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