Top tax accounting considerations for year-end 2020

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As we close out the calendar year, we reflect on 2020 developments impacting financial reporting. There has been considerable activity with financial reporting implications, including accounting for the impacts of COVID-19, as well as regulatory and legislative developments both in the United States and abroad.

PwC’s Tax Accounting Services team has prepared this ‘Top tax accounting considerations for year-end 2020’ publication, which highlights key areas that could have an impact on financial statements.

Which developments made the biggest impact for financial reporting?

Accounting for the impacts of COVID-19

2020 has been a challenging year due to the impacts of COVID-19. While some companies and industries may be doing well despite the economic disruptions, many have found that they incurred losses in 2020 instead of making profits as they had originally projected. With forecasts changing throughout the year and the impacts still being felt as companies prepare to head into  2021, we discuss valuation allowance assessments, goodwill impairments, and going concern—tax accounting implications.

Accounting for the CARES Act

In response to the market volatility and instability resulting from the coronavirus pandemic, the United States enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. Some of the key provisions of the Act affect income tax accounting and companies were required to record the impact(s) of the tax law change in the period of enactment. However, there may be instances where the effects of the CARES Act have changed since the period of enactment as a result of actual earnings for the year; therefore, companies should continue to evaluate which aspects of the legislation (if any) continue to be applicable and whether estimates have changed.

Accounting for regulations and expiring provisions

An area of complexity that continues to affect financial reporting is the application of US tax reform, due to the continued volume of guidance issued by Treasury and the IRS throughout 2020.  The issued final and proposed regulations provide various effective dates, including the ability for retroactive application in certain cases. Therefore, companies need to assess the impacts to the current year and determine if amended returns will be filed for the application of the final regulations to prior tax years.

Uncertain tax positions

The assessment of an uncertain tax position is a continuous process that does not end with the initial determination of a position’s sustainability. Positions should be assessed each period for new information. During the year, there were a number of case law developments, changes in tax law (including the CARES Act), and Treasury’s issuance of final and proposed regulations. Generally, as future developments further refine the application of law impacting a tax position, the effects are recorded in the financial statements in the period such guidance is issued.

US case law developments in 2020 include Whirlpool, Altera, and Coca-Cola.

Global tax law developments

There have been many changes to global tax law during the course of 2020, including emergency measures related to COVID-19. Similar to the CARES Act in the United States, these measures introduced payment deferrals, as well as changes to loss utilization rules and the timing of certain deductions.

In addition to the COVID-19 support measures, several territories enacted various other law changes. Moreover, there is a possibility of further legislative developments in late December of 2020. Therefore, it is important for companies to monitor global tax law developments to assess the impacts on the 2020 provision and disclosures.

Contact us

Rick Levin

Rick Levin

US Tax Accounting Services Leader, PwC US

Jennifer Spang

Jennifer Spang

Partner, Tax Accounting, PwC US

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