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Tax News

Proposed regulations would eliminate the benefit of SALT limitation workarounds.

In proposed regulations, the IRS has stymied certain states' efforts to work around the new limitations to state and local tax (SALT) deductions. The Tax Cuts and Jobs Act amended Internal Revenue Code section 164(b)(6) to limit individual annual SALT deductions to a maximum of $10,000, with no carryover for taxes paid in excess of that amount. In response, several states implemented workarounds to this deduction limit. For example, New York established new “charitable gifts trust funds,” to which taxpayers can make deductible contributions and claim a tax credit equal to 85% of the donation. Similarly, New Jersey enacted legislation that permits localities to establish charitable funds to which taxpayers can contribute and receive a 90% New Jersey property tax credit. The proposed rules would offset the deductions a taxpayer receives from charitable contributions by the amount of any SALT credit received.

New benchmark interest rate for hedge accounting to be published.

FASB plans to publish an update to its hedge accounting standard that will add a new interest rate based on the U.S. Treasury repurchase market to the list of accepted benchmark interest rates for hedge accounting. The Federal Reserve introduced the new rate in April as an alternative to the London Interbank Offered Rate (LIBOR), which was tarnished by a rate-rigging scandal in 2012. Most of the audit firms, professional groups, and businesses that responded to FASB's proposal agreed with the board's plan, but some said FASB should consider a broader principle to more quickly adopt new benchmark interest rates. FASB rejected this idea. “I think that we've demonstrated through this process that we are ready, willing, and able at the appropriate time to go through the process of considering the addition of another rate, and I think we will do that when the time is right depending on how the markets develop,” FASB member Christine Botosan said.

Cloud computing setup costs to be capitalized.

FASB has published Accounting Standards Update 2018-15, which will let businesses capitalize the often-expensive implementation costs related to setting up business systems that operate on cloud technology. The final update, which was crafted by FASB's Emerging Issues Task Force (EITF), will align the accounting for these costs with the accounting for costs associated with developing or obtaining internal-use software. The update directs businesses to look at the guidance in Accounting Standards Codification 350-40, “Intangibles—Goodwill and Other—Internal-Use Software,” in order to determine which implementation costs in a cloud computing arrangement that is considered a service contract can be capitalized as an asset. This change is expected to result in businesses paying to reconfigure systems and enter code to enable cloud-managed business service expenses to be treated as long-term assets and amortized over the life of the arrangement.