AICPA Issues New TQAs on Deferred Tax and State and Local Governments

The AICPA has issued new Technical Questions and Answers (TQAs) under new Section 3300, Deferred Taxes, and Section 6950, State and Local Governments

TQA Section 3300 Deferred Taxes

New TQA Section 3300, Deferred Taxes, includes guidance relating to the limitation on interest deductibility for certain companies adopted under Section 163(j) of the Internal Revenue Code (Code), as amended by the Tax Cuts and Jobs Act of 2017 (TCJA). Section 163(j) is effective for tax years beginning after 2017. The new TQAs are:

  • 01 Background to Section 3100.02 — Revised Section 163(j) Limitation; and
  • .02 Evaluation of the Realizability of a Section 163(j) Carryforward.

TQA Section 3300.01 discusses the background to the guidance under Section 3300.01. That discussion notes that Code Section 163(j) generally limits deductions for net interest expense to 30% of adjusted taxable income, except for certain small businesses. TQA Section 3300.01 notes that since the enactment of the TCJA, the disallowed interest deduction resulting from the revised Section 163(j) limitation has led to more entities having a deferred tax asset (DTA) for the unlimited interest deduction carryforward provided by the law. Moreover, entities with significant debt and interest expense may have experienced (and expect to continue to experience) disallowed interest deductions every year.  

Section 3300.02, Evaluation of the Realizability of a Section 163(j) Carryforward, provides guidance for how an entity should assess realizability of its existing DTA related to disallowed interest deductions when there are (a) reversing deferred tax liabilities (DTLs) and (b) an expectation of future interest expense that also will be limited under Section 163(j).

TQA Section 6950 State and Local Governments

The new paragraphs under TQA Section 6950, State and Local Governments, provide guidance under GASB Statement No. 84, Fiduciary Activities, effective for reporting periods beginning after December 15, 2018. The new paragraphs are:

  • .23 Background; and
  • .24 Auditor Assessment of a Special-Purpose Government’s Only Immaterial Fiduciary Fund.

Paragraph .23, Background, discusses Statement 84, which changed the framework to evaluate whether activities are fiduciary and clarified that the reporting of fiduciary activities applies also to special-purpose governments engaged in business-type activities (BTAs). Under Statement 84, some BTAs will be reporting fiduciary activities for the first time.

A critical issue involved in implementing Statement 84 is the auditor’s consideration of materiality when a government omits reporting fiduciary activities.

New paragraph TQA 6950.24, Auditor Assessment of a Special-Purpose Government’s Only Immaterial Fiduciary Fund, discusses a situation in which a BTA has not previously reported any fiduciary activities, after evaluation, omits to report its only identified fiduciary fund. Paragraph .24 discusses how the auditor should assess the appropriateness of the government’s omission of the fiduciary fund.

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