Potential tax considerations associated with the new leasing standard

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November 2016


The FASB issued an Accounting Standards Update on Topic 842, Leases, on February 25, 2016. This new guidance will significantly impact the U.S. GAAP financial statement accounting for leases by lessees, eliminating the traditional concept of an operating lease. Under the new guidance, virtually all leases will be included on the balance sheet for lessees. As companies transition to the new leasing standard for financial reporting, changes to lease accounting policies, lease terms and conditions, and processes and systems used to track and account for leases may impact several areas within the tax function, including U.S. tax accounting methods, deferred tax accounting, state taxes, transfer pricing, and tax processes and systems. This Insight summarizes several potential tax considerations when transitioning to the new leasing standard.

The new lease accounting guidance will be effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (one year later for annual periods for entities not meeting the FASB’s definition of a public business entity). Early adoption is permitted. The new standard must be adopted using a modified retrospective transition. Transition will require application of the new guidance at the beginning of the earliest comparative period presented.

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Rick Levin

US Tax Accounting Market Leader, PwC US

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