Financial Statement Impact American Taxpayer Relief Act
The Act was enacted on January 2nd. Even though it was applicable retroactively to 2012, the accounting rules are quite clear about when such changes can be recognized in the financial statement. The effects of changes in tax laws or rates can be recognized in the financial statements only in the period in which the law is enacted (ASC 740).
The Act extended many business tax credits and other provisions that expired December 31, 2011. While this is not by any means a comprehensive list of all those items, some important extensions are:
- The tax credit for increasing research and development activities (Sec. 41). The credit is modified to allow partial inclusion in qualified research expenses and gross receipts from an acquired trade or business or major portion of one;
- The credit for railroad track maintenance (Sec. 45G);
- Credits with respect to facilities producing energy from certain renewable resources (Sec. 45(d), as modified);
- Alternative fuels excise tax credits (Sec. 6426); and
- Incentives for biodiesel and renewable diesel (Sec. 40A);
Taxpayers should record the benefit of extending any expired provisions since January 1, 2012 in the financial statement period that includes the date of enactment, January 2, 2013. Thus, for calendar year taxpayers, the benefit of these credits will not be recognized as a reduction in income tax expense in 2012. Instead, that reduction will be recorded in the year ending December 31, 2013.
Please call any of the partners or managers at BKM Sowan Horan with any questions you may have on the financial statement implications of the tax extenders in your financial statements for the year ended December 31, 2012.