TEI Submits Comments to the FASB Concerning Proposed Changes to ASC 740.

• Date: 01 November 2019

On May 31, 2019, TEI submitted comments to the Financial Accounting Standards Board concerning proposed changes to the disclosure requirements for income taxes in ASC 740. TEI's comments highlighted proposed changes that would provide marginal benefits to financial statement users, while presenting significant implementation costs and burdens to preparers. TEI also urged the FASB to consider not only how disclosed tax information may be used to improve financial decision-making, but also how it can be misused. TEI's comments were prepared by TEI's Financial Reporting Committee, whose chair is Stephen Dunphy, with assistance from TEI's chief tax counsel, Patrick Evans.

Tax Executives Institute ("TEI" or the "Institute") is pleased to provide comments on FASB Exposure Draft, Proposed Accounting Standards Update (Revised)--Income Taxes (Topic 740): Disclosure Framework--Changes to the Disclosure Requirements for Income Taxes, which was issued on March 25, 2019 (the "2019 Update"). The 2019 Update revises an exposure draft issued July 26, 2016, addressing the same subject matter (the "2016 Update"). The 2016 Update attracted extensive stakeholder feedback, including comments submitted by TEI on December 12, 2016 ("TEI's 2016 Comments"). The FASB deliberated this feedback throughout early 2017, but suspended further work on the project in light of progress being made with comprehensive U.S. tax reform legislation in the U.S. Congress. This decision proved to be correct as tax reform legislation enacted on December 22, 2017, commonly referred to as the Tax Cut and Jobs Act or "TCJA," fundamentally changed the taxation of U.S. business enterprises with foreign operations and made other significant amendments to the tax code.

The 2019 Update reflects revisions the FASB made after considering stakeholder comments on the 2016 Update, the effects of the TCJA on proposals made in the 2016 Update, and stakeholder feedback received after the TCJA was enacted. We commend the FASB for its thoughtful approach to proposing updates in this particularly complex area of financial reporting. The FASB was and remains cognizant of the need to identify a narrower set of disclosures, taking into consideration, among other things, the usefulness of the information disclosed and whether the expected benefit of the disclosure justifies the added administrative cost and burden. As a professional association of in-house tax executives, TEI offers a unique perspective and is particularly well-suited to provide comments on the 2019 Update.

TEI Background

TEI is the preeminent association of in-house tax professionals worldwide. Our approximately 7,000 members represent more than 2,800 of the leading corporations in North and South America, Europe, and Asia. TEI membership is exclusive to individuals employed by corporations and other for-profit business enterprises in a tax-related function. Its members are dedicated to developing and effectively implementing sound tax policy, promoting the uniform and equitable enforcement of the tax laws, and reducing the cost and burden of tax administration and compliance to the benefit of taxpayers and governments alike.

TEI offers a unique perspective, especially in regard to the financial accounting for income taxes. Its members work for companies involved in a wide variety of industries, and thus, their collective perspectives are broad-based and not tied to any particular special interest group. Further, TEI members are responsible for both the tax affairs of their employers and the reporting of tax information in their employers' financial statements. Thus, they are well-versed in the complexities of the tax laws, as well as the financial accounting rules. We believe the diversity, background, and professional training of TEI's members place us in a uniquely qualified position from which to comment on the FASB's proposed accounting standards updates. Along with the government and the investing public, our members have the most at stake in trying to craft a financial reporting system that fairly presents the results of company operations and is as transparent, administrable and cost-effective as possible.

General Views on the 2019 Update

Accounting standards for income taxes are complex. In many instances, the accounting complexity is an inevitable byproduct of complexities in the tax law. Reviewing these standards is an important and expected role of the FASB, and we appreciate the FASB's efforts, in particular, its focus on ensuring financial statement disclosures are clear and usable and the benefits of providing the disclosures justify the costs. Ideally, the proposed updates will minimize deviations in the interpretation of the guidance, which, in practice, should be consistently applied by all organizations across a wide variety of industries.

The FASB has recognized the "objective of financial reporting is to provide information that is useful to present and potential investors, creditors, donors, and other capital market participants in making rational investment, credit, and similar resource allocation decisions." 2019 Update at 21, para. BC6. TEI members agree with this view and are in favor of updates to Topic 740 that increase the usefulness of income tax disclosures in line with these objectives when the benefits justify the costs. We respectfully request that the FASB, when deliberating this and future updates, consider not only how disclosed tax information may be used to improve financial decision-making, but also how it can be misused.

Comments on Specific Proposals

In the following paragraphs, we provide comments on the main provisions in the 2019 Update, following the Questions for Respondents provided on pages 3-5 of the exposure draft.

Question 1: Would the amendments in this proposed Update that add or modify disclosure requirements result in more effective, decision-useful information about income taxes? Please explain why or why not. Would the proposed amendments result in the elimination of decision-useful information about income taxes? If yes, please explain why. Additional Carryforward Disclosures under Proposed ASC 740-10-50-6A

Proposed ASC 740-10-50-6A would require public business entities to disclose detailed data concerning deferred tax assets for federal, state, and foreign carryforwards. See 2019 Update at 9. The proposed disclosure would increase the existing income tax footnote disclosures by requiring a new table detailing the following:

* tax-affected amounts of federal, state, and foreign carryforwards by time period of expiration for each of the first five years after the reporting date,

* a total for any remaining years,

* a total for carryforwards that do not expire,

* the total amount of unrecognized tax benefits that offsets the deferred tax asset attributable to carryforwards in accordance with ASC 740-10-45-10A, and

* the amounts of any valuation allowance recognized for deferred tax assets for federal or national, state, and foreign carryforwards.

Unlike the corresponding proposal made in the 2016 Update, proposed ASC 740-10-50-6A does not require disclosure of carryover information on a pretax basis. We applaud the FASB for this change and agree with the reasoning set forth in the 2019 Update in support of it. See 2019 Update at 37, para. BC73. We do not believe the disclosure should be...