In response to the American Bankers Association’s letter to the Financial Accounting Standards Board on the unexpected consequences that tax reform will have on regulatory capital, FASB has agreed to address the issue during its upcoming meeting on Jan. 10.
In the letter, ABA pointed out that, under current tax accounting, the reduction of deferred tax assets and liabilities are recorded entirely within net income, including those applying to items in accumulated other comprehensive income such as unrealized gains and losses on available for sale securities. As a result, not only are net income and regulatory capital distorted, but this treatment also creates onerous operational burdens to track the related amounts in the future. Since ABA first expressed its concerns to FASB, other trade groups representing insurers have expressed support for the association’s letter.
ABA believes that an alternative may be considered by FASB that addresses the regulatory capital impact. FASB is also considering other tax accounting issues related to tax reform during the meeting, which may result in some longer-term projects to be addressed later in the year. For more information, contact ABA’s Josh Stein, John Kinsella or Mike Gullette.