NAREIT Alert (August 11, 2016)

On July 26, the Financial Accounting Standards Board (FASB or Board) issued a proposal (the Proposal) that would change the disclosure requirements for income taxes. The Proposal will be of particular interest to NAREIT members with taxable REIT subsidiaries, as it could add additional disclosures to existing requirements. If you are interested in participating in a task force that will evaluate the Proposal and consider whether NAREIT should develop a response to the Board, please contact Christopher Drula at cdrula@nareit.com by August 22. Comments are due to the Board by Sept. 30.

The Board is seeking constituent input on whether the following disclosures should be required for all companies:

• Description of any enacted change in tax law that is probable to have an effect on the reporting organization in a future period;
• Income (or loss) from continuing operations before income tax expense (or benefit) separated between domestic and foreign jurisdictions;
• Income tax expense (or benefit) from continuing operations separated between domestic and foreign jurisdictions;
• Income taxes paid separated between domestic and foreign jurisdictions, and the amount of income taxes paid to any country that is significant to total income taxes paid;
• An explanation of circumstances that caused a change in assertion about the indefinite reinvestment of undistributed foreign earnings and the corresponding amount of those earnings; and,
• The aggregate of cash, cash equivalents, and marketable securities held by foreign subsidiaries.

The Board also seeks input on whether the following disclosure requirements should be added for public companies:

• Within the reconciliation of the total amounts of unrecognized tax benefits at the beginning and the end of the period, settlements using existing deferred tax assets separate from those that have been or will be settled in cash.
• The line items in the statement of financial position in which the unrecognized tax benefits are presented and the related amounts of such unrecognized tax benefits. If the unrecognized tax benefits are not presented in the statement of financial position, those amounts should be disclosed separately.
• The amount and explanation of the valuation allowance recognized and/or released during the reporting period.
• The total amount of unrecognized tax benefits that offsets the deferred tax assets for carryforwards.

The Proposal would also require public companies to disclose the amounts of federal, state, and foreign carryforwards (both tax effected and not tax effected) by time period of expiration for each of the first five years after the reporting date and a total for any remaining years.

The Proposal would eliminate the requirement for all organizations to:

• Disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months; or,
• Affirmatively state that an estimate of the range cannot be made.

The Proposal would also modify the existing rate reconciliation requirement for public companies to be consistent with U.S. Securities and Exchange Commission regulations and would require all entities to disclose the description of a legally enforceable agreement with a government which could reduce its tax burden. These disclosures would include the duration of the agreement and the commitments made with the government under that agreement and the amount of benefit that reduces, or may reduce, its income tax burden.

Contact: George Yungmann at gyungmann@nareit.com or Christopher Drula at cdrula@nareit.com.