A number of widely relevant US tax law provisions affecting businesses expired on December 31, 2013. That includes the research and development tax credit, work opportunity tax credit, increased expensing and bonus depreciation allowances, and certain favorable 'subpart F' provisions (i.e., the look-through treatment of payments between related controlled foreign corporations and exceptions for certain active financing income). The financial reporting implications of the expirations should be kept in mind both for calendar year-end and interim-period financial statements.
Accounting Standards Codification (ASC) Topic 740, Income Taxes, requires companies to measure current and deferred income taxes based upon the tax laws that are enacted as of the balance sheet date of the relevant reporting period. With respect to deferred tax assets and liabilities, that means measurement is based upon the enacted law for the period in which the temporary differences are expected to be realized or settled. Expired tax laws are not considered, nor would they be in statements prepared under International Financial Reporting Standards (IFRS).
Accordingly, some of the more significant impacts that should be considered with respect to these expired tax laws include:
Where the active financing exception applies, it may be necessary to record US deferred taxes for a foreign subsidiary's inside basis temporary differences if their reversals will result in subpart F consequences. See Example 11-17 in PwC's Guide to Accounting for Income Taxes for an illustration of the interaction of subpart F income and the indefinite reinvestment assertion.
Access a PDF copy of the article on PwC.com.
For a deeper discussion of how this issue might affect your business, please contact:
Ken Kuykendall, Chicago
Global & US Tax Accounting Services Leader
Partner
+1 (312) 298-2546
o.k.kuykendall@us.pwc.com
David Wiseman, Boston
Global & US Tax Accounting Services
Partner
+1 (617) 530 7274
david.wiseman@us.pwc.com
Gary F. Jones, Boston
Global & US Tax Accounting Services
Managing Director
+1 (617) 530 5663
gary.f.jones@us.pwc.com