The Tax Cuts and Jobs Act (TCJA) signed into law on Dec. 22, 2017, the most sweeping overhaul of the Internal Revenue Code in more than thirty years, has had a significant impact on insurance organizations. Changing from a worldwide to a territorial tax system, several insurance specific provisions and countless other changes to the calculation of taxable income, the TCJA left insurance organizations scrambling to understand, analyze and incorporate the many new provisions of the tax bill.
To address concerns raised by companies regarding the enactment date of the TCJA and the limited timeframe available to accurately determine the impact of tax changes within their annual and quarterly reports filed with the Securities and Exchange Commission (SEC), the staff from the Office of the Chief Accountant and Corp Fin released Staff Accounting Bulletin (SAB) 118 on Dec. 22, 2017, to provide guidance on accounting and disclosures for the impact of the TCJA. The Financial Accounting Standards Board (FASB) released a Q&A in early 2018 confirming SAB 118 may be used for private companies and not-for-profit entities and the National Association of Insurance Commissioners (NAIC) quickly followed suit with the adoption of interpretation (INT) 18-01. As part of the guidance issued by the SEC, FASB and NAIC, companies were given a one-year measurement period to finalize the accounting for the impacts of the TCJA. The one-year measurement period ends on Dec. 22, 2018. Insurance organizations must fully account for all aspects of tax reform within their financial statements by this date.
In addition to lowering the corporate tax rate from 35 percent to 21 percent, the TCJA incorporated several insurance specific provisions with effective dates as of Jan. 1, 2018, including the following:
As insurance organizations complete the accounting for all aspects of tax reform by the end of the measurement period, certain tax reform related footnotes must also be considered. The guidance under SAB 118, relied upon by both the FASB and NAIC, requires certain disclosures including when the accounting for the income tax effects of the TCJA has been completed. Additionally, the NAIC adopted INT 18-03 at the 2018 summer meeting, which includes additional disclosure requirements for insurance organizations that have an alternative minimum tax credit carryforward that is getting utilized or refunded, a tax liability for the section 965, or repatriation, tax or are electing to set up a deferred inventory item for basis differences expected to reverse as global intangible low-taxed income.
For sample footnote disclosures related to tax reform for use in insurance organizations’ year-end 2018 financial statements, please click here >
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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.