SR 18-2:
Interagency Statement on Accounting and Reporting Implications of the New Tax Law
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551
DIVISION OF
SUPERVISION AND REGULATION
January 18, 2018
TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK AND TO FINANCIAL INSTITUTIONS SUPERVISED BY THE FEDERAL RESERVE
Interagency Statement on Accounting and Reporting Implications of the New Tax Law
Applicability: This guidance applies to all Federal Reserve supervised financial institutions, including those with $10 billion or less in consolidated assets, that file regulatory reports prepared in accordance with generally accepted accounting principles (GAAP).
The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (the agencies) issued the attached Interagency Statement on Accounting and Reporting Implications of the New Tax Law to provide supervised institutions with guidance on the accounting implications of the new tax law, which was enacted on December 22, 2017 (the Act),1 and certain related matters.
The accounting guidance in the interagency statement is based on the application of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, "Income Taxes,"and does not represent new rules or regulations of the agencies. ASC Topic 740 requires institutions to recognize the effect of changes in tax laws or rates in the period in which the legislation is enacted. As the Act was enacted prior to December 31, 2017, institutions would record the effects of the Act in their December 31, 2017 regulatory reports. Changes in deferred tax assets (DTAs) and deferred tax liabilities (DTLs) resulting from the Act's lower corporate income tax rate and other applicable provisions of the Act, would be reflected in an institution's income tax expense in the period of enactment.
The statement notes that the agencies expect supervised institutions to use all available information to make a good faith effort to reasonably estimate the effects of the Act when preparing their December 31, 2017 regulatory reports. Institutions will be allowed to refine their reasonable estimates as additional information is obtained and will not be required to amend previously filed regulatory reports as these estimates are adjusted.
The statement also acknowledges that the Act may result in a decrease in capital and after-tax earnings for institutions in a net DTA position as of and for the period ending December 31, 2017. The agencies view the effect of remeasuring DTAs and DTLs due to the Act as a nonrecurring event that generally will not have a substantial adverse impact on most institutions' core earnings or capital over the long term. Nevertheless, if an institution expects the effects of the Act to lower its prompt corrective action category as of December 31, 2017, or a subsequent quarter-end date, the institution should contact its primary federal regulator.
Reserve Banks are asked to distribute this letter to supervised institutions in their districts, as well as to appropriate supervisory and examination staff. Questions regarding this letter should be directed to Lara Lylozian, Assistant Chief Accountant, at (202) 475-6656 in the Division of Supervision and Regulation. In addition, questions may be sent via the Board's public website.2
signed by
Michael S. Gibson
Director
Division of
Supervision and Regulation
Notes:
- An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, P.L. 115-97 (originally introduced as the Tax Cuts and Jobs Act). Return to text
- See http://www.federalreserve.gov/apps/contactus/feedback.aspx. Return to text