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Tax News

IRS finalizes rental real estate safe harbor.

The IRS has finalized a proposed Revenue Procedure issued earlier this year that provides a safe harbor under which a rental real estate enterprise will be treated as a trade or business solely for the purposes of Internal Revenue Code (IRC) section 199A, the qualified business income (QBI) deduction. Solely for purposes of the safe harbor, a rental real estate enterprise is defined as an interest in real property held for the production of rents and may consist of an interest in a single property or interests in multiple properties. The taxpayer or relevant pass-through entity relying on the Revenue Procedure must hold each interest directly or through an entity disregarded as an entity separate from its owner under any provision of the IRC. If the safe harbor requirements are met, the rental real estate enterprise will be treated as a single trade or business as defined in IRC section 199A(d) for purposes of the QBI deduction.


Commenters say proposed deferral for insurance accounting would create mismatch for reinsurers.

Senior accountants from some of the nation’s largest insurance companies have told FASB that its proposal to defer the effective date of new accounting for long-term insurance contracts poses adoption issues for reinsurers unless they are granted a transition exception. In comment letters, Cigna Corp., Athene Holding Limited, and Unum Group asked FASB to carve out a practical expedient for reinsurance contracts so insurers can adopt the changes at the same time for those blocks of contracts. The companies said the staggered effective dates between large public and “all other companies” the board has proposed would create asymmetry and add cost and complexity to reinsurers’ rule adoption efforts. “We have concerns over the different effective dates for larger public companies and entities defined as ‘other than larger public companies’ within the proposal as it applies to reinsurance,” Roger L. VanCleave, vice president of technical accounting at Unum Group, said in a comment letter to the board.

FASB aims to finalize proposed simplifications for distinguishing liabilities and equity in early 2020.

FASB Chairman Russell Golden has told the board’s main advisory body it plans to take up discussions in December on a narrow proposal that simplifies rules for financial instruments with characteristics of liabilities and equity, one of the most complex accounting issues and the cause of frequent restatements. In July, FASB issued proposed Accounting Standards Update (ASU), Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under the changes, the number of accounting models for convertible debt instruments and convertible preferred stock would be reduced from the current five, which accountants have said are complex and difficult to navigate. The rules are also costly to comply with, requiring the maintenance of controls and audit costs. Reducing the number of accounting models for convertible instruments would simplify the rules, enabling more consistent and more relevant information for financial statement users to understand, according to the proposal. It would also result in fewer manual adjustments in users’ analyses.


GASB proposes reporting changes to ease effects of rate reform.

State and local governments can comment on a GASB proposal that aims to revise the financial reporting rules for contracts that reference interbank offered rates that are being phased out. At least $200 trillion worth of financial products are tied to the London Interbank Offered Rate (LIBOR), which will be discontinued after 2021. The proposal would amend GASB Statement 53, Accounting and Financial Reporting for Derivative Instruments, and Statement 87, Leases, to enable governmental entities to continue to account for certain types of agreements in the same manner as before replacement of a reference rate. Comments are due by November 27.