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Tax News

Proposed regulations would eliminate the benefit of SALT limitation workarounds.

In proposed regulations, the IRS has stymied certain states’ efforts to work around the new limitations to state and local tax (SALT) deductions. The Tax Cuts and Jobs Act amended Internal Revenue Code section 164(b)(6) to limit individual annual SALT deductions to a maximum of $10,000, with no carryover for taxes paid in excess of that amount. In response, several states implemented workarounds to this deduction limit. For example, New York established new “charitable gifts trust funds,” to which taxpayers can make deductible contributions and claim a tax credit equal to 85% of the donation. Similarly, New Jersey enacted legislation that permits localities to establish charitable funds to which taxpayers can contribute and receive a 90% New Jersey property tax credit. The proposed rules would offset the deductions a taxpayer receives from charitable contributions by the amount of any SALT credit received.

New benchmark interest rate for hedge accounting to be published.

FASB plans to publish an update to its hedge accounting standard that will add a new interest rate based on the U.S. Treasury repurchase market to the list of accepted benchmark interest rates for hedge accounting. The Federal Reserve introduced the new rate in April as an alternative to the London Interbank Offered Rate (LIBOR), which was tarnished by a rate-rigging scandal in 2012. Most of the audit firms, professional groups, and businesses that responded to FASB’s proposal agreed with the board’s plan, but some said FASB should consider a broader principle to more quickly adopt new benchmark interest rates. FASB rejected this idea. “I think that we’ve demonstrated through this process that we are ready, willing, and able at the appropriate time to go through the process of considering the addition of another rate, and I think we will do that when the time is right depending on how the markets develop,” FASB member Christine Botosan said.

Cloud computing setup costs to be capitalized.

FASB has published Accounting Standards Update 2018-15, which will let businesses capitalize the often-expensive implementation costs related to setting up business systems that operate on cloud technology. The final update, which was crafted by FASB’s Emerging Issues Task Force (EITF), will align the accounting for these costs with the accounting for costs associated with developing or obtaining internal-use software. The update directs businesses to look at the guidance in Accounting Standards Codification 350-40, “Intangibles—Goodwill and Other—Internal-Use Software,” in order to determine which implementation costs in a cloud computing arrangement that is considered a service contract can be capitalized as an asset. This change is expected to result in businesses paying to reconfigure systems and enter code to enable cloud-managed business service expenses to be treated as long-term assets and amortized over the life of the arrangement.


Hoogervorst sees uncertain outcome for reassessment of goodwill impairment.

The IASB’s reassessment of goodwill accounting may achieve little more than reminding financial professionals of the difficulty posed by goodwill impairment and the lack of a reliable substitute, according to the board’s chairman, Hans Hoogervorst. “It may be that there is no better alternative, but in that case we should accept the current shortcomings of IFRS 3 [Business Combinations] with our eyes wide open,” Hoogervorst said in regard to the board’s reassessment of the standard. “Should the discussion paper lead to better awareness of the possible pitfalls of current accounting for goodwill, this would in itself be a positive development.” The board wants to hear public views about the prospects for improving goodwill accounting, including the possible reintroduction of goodwill amortization to its guidance, which was eliminated when IFRS 3 was published in 2004. The board has not announced a planned publication date for the discussion paper.


Test sites for Uniform CPA Examination expand to Europe.

The AICPA, the National Association of State Boards of Accountancy (NASBA), and Prometric have announced that the Uniform CPA Examination will be expanded to test sites in England, Germany, Ireland, and Scotland. Testing in the new international locations will be open to eligible citizens and residents of the countries in which the exam is being administered. In addition, eligible citizens and residents of the European Union (EU), Norway, the Russian Federation, and Switzerland can also take the exam at the new locations. U.S. citizens can take the test at any location where it is offered. “Expanding the international testing locations to Europe is a direct result of the overwhelming positive response from international exam candidates in Japan, the Middle East, and Brazil, where the exam is currently offered,” said NASBA President and CEO Ken Bishop in a statement.


Guidance for separate legal entities clarified.

On September 4, GASB published guidance to clarify the financial reporting guidelines for state and local governments that hold majority interests in legally separate organizations. GASB Statement 90 states that a government’s majority stake in an organization that is legally separate from it should be reported as an investment if the equity interest satisfies the GASB’s definition of an investment. A majority interest that does not meet the definition in GASB Statement 72 should be reported as a component unit, according to GASB Statement 90. The standard also establishes accounting requirements for measuring assets and liabilities of wholly acquired governmental organizations that remain legally separate. The standard will be effective for reporting periods that start after December 15, 2018, but GASB is encouraging implementation of the new accounting ahead of the effective date.