FASB Recommends New Tax Cut Be Booked As Deduction

by Mike Godfrey, Tax-News.com, Washington

12 November 2004

US firms that expect to benefit from tax cuts under the American Jobs Creation Act 2004 should book the tax break as a “special deduction” against taxable income over time, the Financial Standards Accounting Board has recommended.

The decision made by the FASB at a meeting on Wednesday is likely to be welcomed by firms eligible for tax relief under the new act, which comes into force in January, as they will not need to immediately adjust their deferred income-tax balances based on the reduced tax rate, meaning that they will not suffer a one-time hit on earnings.

Signed by President Bush last month, the tax package will usher in a 3% reduction in corporate tax to 32% for a range of domestic producers in compensation for the loss of export subsidies provided under soon-to-be repealed legislation.

Under the FASB's proposed accounting treatment, during the periods that the benefits are taken, companies would be able to lower the income that is subject to tax, which will effectively reduce income tax expenses.

The FASB plans to officially propose the measure on Monday and finalise regulations by the end of the year. However, the new rule is still subject to a 15-day public comment period.

Recommended