FASB proposed guidance on the AJCA.

• Author: Laffie, Lesli S.
• Position: Financial Accounting Standards Board, American Jobs Creation Act of 2004

The Financial Accounting Standards Board (FASB) issued proposed guidance, effective immediately, on accounting issues raised by two key provisions of the American Jobs Creation Act of 2004 (AJCA).

The guidance, released as two proposed FASB staff positions (proposed FSPs), details the proper accounting treatment of the new deduction for domestic manufacturing activities (new Sec. 199) and provides transition rules for the 85% temporary dividends-received-deduction (DRD) for some repatriated foreign earnings (new Sec. 965). FSPs are a special form of guidance the FASB developed to respond promptly to questions on the application of FASB guidance likely to have widespread effect.

Manufacturing Deduction

According to proposed FSP Financial Accounting Statement (FAS) 109-a, the manufacturing deduction should be accounted for as a special deduction under the rules of FASB Statement No. 109, Accounting for Income Taxes. When fully phased in, Sec. 199 will provide a 9% deduction for income attributable to domestic production activities.

As to whether the deduction should be accounted for as a special deduction or tax rate reduction, the paper concludes that the former treatment is more appropriate, "because the domestic manufacturing deduction is based on the future performance of specific activities" and, thus, is similar to the special deductions illustrated in FASB Statement No. 109, [paragraph] 231.

Repatriation

As for the repatriation provision, proposed FSP FAS 109-b concludes that a company "should be allowed time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying Statement 109." The 85% DRD is a one-time-only...