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Year-end toolkit: Tax accounting and reporting reminders for 2025 · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PwC's National Office.
• 0:07
  SPEAKER_02: Hello, and welcome to PWC's Accounting Podcast.
• 0:11
  SPEAKER_02: I'm Heather Horn.
• 0:13
  SPEAKER_02: Today's episode is the next installment of our year-end toolkit series, which covers a range of topics designed to help you through the year-end close.
• 0:22
  SPEAKER_02: And as I say every episode, don't worry, even if December 31 is not your year-end, or you're not directly involved with the reporting process, this series has something for everyone.
• 0:35
  SPEAKER_02: Specifically today, we're honing in on income taxes, covering a variety of topics from Pillar 2 to the FASB income tax disclosure standard to accounting for IRA credits.
• 0:47
  SPEAKER_02: And yes, of course, we can't talk about taxes without discussing recent election results and what that may mean as we look ahead.
• 0:55
  SPEAKER_03: The only thing that's been constant or consistent in taxes is change.
• 1:01
  SPEAKER_03: And so the reality is that it really doesn't matter what period we're in.
• 1:06
  SPEAKER_03: Having the people and processes in place to understand what's coming down the pike, understand what matters to you as a company, be able to respond versus react to developments because you've already spent some time thinking about what those impacts might look like.
• 1:21
  SPEAKER_03: That might include modeling, whatever and however you get through that.
• 1:26
  SPEAKER_03: It's about knowing what's out there.
• 1:28
  SPEAKER_02: That was Jen Spang, PWC's National Office Income Tax Accounting Leader.
• 1:34
  SPEAKER_02: Jen specializes in tax accounting and has years of experience helping companies navigate complex tax accounting matters.
• 1:42
  SPEAKER_02: Back again as our host is Kyle Moffitt, PWC's National Office Professional Practice Group Leader, and our guest host for this series.
• 1:51
  SPEAKER_02: Let's start that episode.
• 1:55
  SPEAKER_06: Hello, Jen, and welcome back to our year-end podcast series.
• 1:59
  SPEAKER_06: Income taxes is always a hot topic, and this year is no different with all that's what's happening with respect to the recent election results.
• 2:08
  SPEAKER_06: You know, Pillar 2, the FASBE Disclosure Project, IRA credits, and other legislative actions.
• 2:14
  SPEAKER_06: 2025's on the horizon.
• 2:16
  SPEAKER_06: Um, you spoke on a panel at the December AICPA conference here in DC on Pillar 2 implementation.
• 2:22
  SPEAKER_06: Got a lot of great feedback from a number of folks that I talked to.
• 2:25
  SPEAKER_06: So I'm really excited to have you here for this conversation.
• 2:28
  SPEAKER_06: And I think certainly our listeners will will appreciate the the insights you have to share.
• 2:33
  SPEAKER_06: So let's dive in and start with the recent election results and the associated tax impacts expected in 2025.
• 2:40
  SPEAKER_06: What are companies thinking through and what impact do they have from an accounting perspective?
• 2:46
  SPEAKER_03: Yeah, I mean, it might be good to kind of break this into two pieces.
• 2:50
  SPEAKER_03: So when you just think about what might be coming in 2025, if you will, obviously a Republican sweep, but the outlook for President-elect Trump's tax legislative proposals passing, you know, still remains uncertain.
• 3:04
  SPEAKER_03: And I think that's a main message, is we don't know what that's gonna look like in 2025, or maybe more importantly, when it's gonna happen in 2025.
• 3:12
  SPEAKER_03: Obviously, the Republican control of both the House and Senate will or should or maybe expected to allow for budget reconciliation procedures such that to pass those tax proposals that they could pass with a Republican-only vote, which of course happened with TCGA in 2017.
• 3:30
  SPEAKER_03: But disagreements or different points of view, even within the party, will impact the time.
• 3:35
  SPEAKER_03: And we've seen that.
• 3:35
  SPEAKER_03: Absolutely.
• 3:36
  SPEAKER_03: So I think there's a lot to see how it unfolds.
• 3:39
  SPEAKER_03: But if I kind of talk about some of the bigger areas that people have been discussing and are of interest, I could kind of break them into four big categories.
• 3:48
  SPEAKER_03: President-elect Trump's proposals that were talked about during the campaign, trade and tariffs, that's a really big one.
• 3:54
  SPEAKER_03: Um, what's coming down the pipe for changes in tax cuts and jobs acts, so TCGA provisions and then OECD.
• 4:00
  SPEAKER_03: So let's just kind of hit on those at a really high level, and then we can talk about what that looks like from a financial statement reporting perspective.
• 4:08
  SPEAKER_03: So corporate proposals talked about maintaining the 21% tax rate, potentially introducing a new 15% corporate rate for companies that are manufacturing products in the US, maybe an expansion of the RD credits, bringing back 100% bonus depreciation.
• 4:25
  SPEAKER_03: You know, those were some of the provisions that were talked about.
• 4:28
  SPEAKER_03: If we go to the second category though, trade and tariffs, I think we're going to be talking about that a lot sooner and looking at that a lot earlier in 2025 than the income tax provisions.
• 4:37
  SPEAKER_03: And there, you know, lots of discussion going on.
• 4:39
  SPEAKER_03: So who knows where it ultimately lands, but discussion of kind of a across the board sort of 10 to 20% tariff on products that are imported.
• 4:49
  SPEAKER_06: Very polarizing topic.
• 4:50
  SPEAKER_06: Absolutely.
• 4:51
  SPEAKER_03: Completely polarizing.
• 4:52
  SPEAKER_03: And then, you know, potentially some targeted tariffs around certain jurisdictions, like maybe China, Mexico.
• 4:59
  SPEAKER_03: So I think that's going to be important.
• 5:01
  SPEAKER_03: Obviously, it's outside of the income tax line, but that's going to be, I think, a very big conversation for companies as they think about what that looks like in their actual operations in 2025 and going forward.
• 5:13
  SPEAKER_03: Tax Cuts and Jobs Act.
• 5:15
  SPEAKER_03: So obviously enacted in 2017, but there are a number of provisions that are scheduled to change in 2025.
• 5:23
  SPEAKER_03: So an increase in the guilty tax rate, same thing with beat, an increase in the beat rate on the other side, also an increase in the FDII rate.
• 5:31
  SPEAKER_03: So that's looking at an exclusion of income.
• 5:33
  SPEAKER_03: And then the big one you mentioned, pillar two at the outset, but pillars one and two, that has obviously been a conversation in the U.S.
• 5:40
  SPEAKER_03: for some time.
• 5:41
  SPEAKER_03: We have not adopted either of those.
• 5:43
  SPEAKER_03: We haven't really seen pillar one moving forward around the globe in general.
• 5:47
  SPEAKER_03: But pillar two has obviously been enacted in a number of jurisdictions, not something that we'd expect to see in the U.S.
• 5:53
  SPEAKER_03: anytime soon.
• 5:54
  SPEAKER_06: Um that's not a complex thing to think about, right?
• 5:58
  SPEAKER_06: Yeah, yeah.
• 5:59
  SPEAKER_03: Not at all.
• 6:00
  SPEAKER_03: You know, ways and means Republicans have actually already introduced bills to um retaliate against countries that either enact UTPR, the under tax profits rule, and we'll talk about that again, or the digital service tax.
• 6:13
  SPEAKER_03: So pillar two is going to be something to watch.
• 6:16
  SPEAKER_03: Though I will caution, and maybe this will help us transition into what does this all mean for financial statement reporting?
• 6:23
  SPEAKER_03: But just on that pillar two one, I think it's really important to remember that pillar two is already here.
• 6:30
  SPEAKER_05: Yeah.
• 6:30
  SPEAKER_03: So a number of jurisdictions around the world have already enacted these provisions.
• 6:34
  SPEAKER_03: So companies are going to be reflecting that, are reflecting that actually already in their 2024 financial statements.
• 6:42
  SPEAKER_03: And barring a law change in each of those jurisdictions, that's not going anywhere.
• 6:46
  SPEAKER_03: So it's important to keep on remembering that just because the US hasn't adopted doesn't mean that our US multinationals aren't dealing with impact.
• 6:56
  SPEAKER_06: Absolutely.
• 6:57
  SPEAKER_03: Yeah.
• 6:57
  SPEAKER_03: So from an accounting perspective, look, this is all future outside of the provisions for TCGA, which are already set to change.
• 7:05
  SPEAKER_03: Nothing's been enacted in these other areas that we've just talked about in the U.S.
• 7:09
  SPEAKER_03: So that's going to be something to watch.
• 7:11
  SPEAKER_03: Clearly encourage companies really being in front of these developments.
• 7:15
  SPEAKER_03: You know, we have an awesome tax policy team here.
• 7:19
  SPEAKER_03: And it's important for companies to be thinking about what matters to them most so that to the extent they have a point of view, whether it's for their company, whether their industry, that they're communicating that with legislators as they come out.
• 7:31
  SPEAKER_03: And that's a way to do it.
• 7:32
  SPEAKER_03: That's it.
• 7:32
  SPEAKER_06: That is a good way to do it.
• 7:33
  SPEAKER_03: That's right.
• 7:34
  SPEAKER_03: So it's not accounting today, obviously, that you don't do accounting until something's enacted, but influencing, being engaged in the policy debate.
• 7:43
  SPEAKER_03: And I would also say disclosure.
• 7:46
  SPEAKER_03: So clearly transparent disclosure is really important.
• 7:49
  SPEAKER_03: Some of these developments you see coming through in like MDNA, uh risk factors, things like that.
• 7:55
  SPEAKER_03: So uh you're not putting that in your tax footnote because there's nothing, you know, it's forward-looking, but there is a place for that.
• 8:02
  SPEAKER_06: Do you foresee when you think about TCGAA, do you foresee like the timeline kind of being similar to that where it's like end of the and it's a mad rush?
• 8:11
  SPEAKER_06: And and to your point, right?
• 8:13
  SPEAKER_06: Like you account for it once it's in place, once it's in effect.
• 8:18
  SPEAKER_06: Do you foresee that like being another maybe another really challenging year beyond all this stuff that you're having to deal with right now, what companies will have to deal with moving forward?
• 8:28
  SPEAKER_06: It could be pretty challenging, right?
• 8:30
  SPEAKER_03: It could, it would be impossible to predict when potential reform might happen.
• 8:35
  SPEAKER_03: You know, so so we've got to get through actually transition of power and then look at what the new administration's priorities are in what order.
• 8:44
  SPEAKER_03: And so it would be impossible to predict.
• 8:47
  SPEAKER_03: I would hope we're not looking at another December enactment.
• 8:51
  SPEAKER_03: But in fairness, I you know, I said break this into kind of two sections.
• 8:55
  SPEAKER_03: There's what's to come, but in fairness, there's a lot still happening right now.
• 9:00
  SPEAKER_03: Right.
• 9:00
  SPEAKER_03: I mean, earlier this week, uh, we had the 987 regs drop, and those deal with the taxation of currency.
• 9:07
  SPEAKER_03: I think it was like 385 pages.
• 9:10
  SPEAKER_06: You told me that the other day, which is like unbelievable.
• 9:13
  SPEAKER_03: You know, there's there's proposed regs that came out.
• 9:16
  SPEAKER_03: There are a number of other reg packages that the current administration is talking about getting out before the end of the year.
• 9:23
  SPEAKER_03: You know, that creates challenges because it to the extent something is released in final form before the end of the year, that is an accounting impact, right?
• 9:31
  SPEAKER_03: Even if it's proposed, you need to think about whether that has an impact.
• 9:36
  SPEAKER_03: And that's not always clear.
• 9:37
  SPEAKER_03: It depends on the law, it depends on your choices.
• 9:40
  SPEAKER_03: And we have an added element that there is a window of time when the new administration takes takes steps in.
• 9:46
  SPEAKER_03: You know, they have some opportunities to change direction of some of the things that were released.
• 9:51
  SPEAKER_03: It's hard to say whether that would or wouldn't happen, but keep in mind you don't anticipate that.
• 9:56
  SPEAKER_03: You got to account for it when you have new information.
• 9:58
  SPEAKER_06: So that's a lot of great uh insight on on what could be coming down the pipeline.
• 10:04
  SPEAKER_06: And, you know, I as as you're kind of going through some of the the items or areas that would be a focus, right?
• 10:09
  SPEAKER_06: Bonus depreciation.
• 10:11
  SPEAKER_06: Uh you mentioned the expanding the research credit.
• 10:14
  SPEAKER_06: And and and look, a lot of these things are really to incentivize businesses to to invest, right?
• 10:19
  SPEAKER_06: To invest, not just in the other piece too, investing domestically, right?
• 10:24
  SPEAKER_06: And so I think it's just important that that you know companies are thinking about and understanding kind of the why.
• 10:29
  SPEAKER_06: Um and then of course it's kind of the on in the background, which you mentioned, right, is a lot of it is it takes a while because there's a lot of back and forth, a lot of bickering over, you know, the budget, right?
• 10:39
  SPEAKER_06: The deficit, right?
• 10:40
  SPEAKER_06: So, you know, I think a lot, a lot for for prepar preparers to really be thinking about, but also engaged um in in in in providing uh feedback.
• 10:48
  SPEAKER_06: Um, so you touched a little bit on pillar two.
• 10:50
  SPEAKER_06: Can you give us a fresh refresher on pillar two?
• 10:53
  SPEAKER_06: Talked about it at the conference.
• 10:54
  SPEAKER_06: What what should companies be keeping in mind for this year end?
• 10:58
  SPEAKER_03: Yeah, so let's start with the refresher.
• 11:00
  SPEAKER_03: It's a global minimum tax based on financial statement income, parent companies gap.
• 11:06
  SPEAKER_03: So that's Q1.
• 11:08
  SPEAKER_03: It's based on tax based on financial statement income.
• 11:10
  SPEAKER_03: So that's a pretty big deal.
• 11:12
  SPEAKER_03: Two, it's global.
• 11:13
  SPEAKER_03: Um, but essentially the policy objective is that you'll be taxed at essentially a minimum tax of 15% in all jurisdictions that you operate in.
• 11:21
  SPEAKER_03: Now, the legislative environment around that is moving.
• 11:26
  SPEAKER_03: While the member countries of essentially that were involved in this pillar two effort from the OECD have agreed to adopt these rules.
• 11:37
  SPEAKER_03: Um, not all jurisdictions have yet adopted.
• 11:40
  SPEAKER_03: So US is an example, China, India.
• 11:42
  SPEAKER_03: You know, there's a number of jurisdictions that have not yet adopted Pillar 2.
• 11:46
  SPEAKER_03: On the other hand, there are a number of jurisdictions that have.
• 11:49
  SPEAKER_03: Um, and we're seeing things right now, Australia actually just had royal assent on a piece.
• 11:54
  SPEAKER_03: So again, this is an area that's just evolving.
• 11:57
  SPEAKER_03: And it's not just about the jurisdictions actually enacting the basic initial rules, but throughout the process, the OECD has been issuing administrative guidance, which is very important.
• 12:09
  SPEAKER_03: In some cases, it's either clarifying something, it's providing some safe harbors.
• 12:14
  SPEAKER_03: It's been very important guidance.
• 12:16
  SPEAKER_03: But importantly, that's OECD guidance.
• 12:18
  SPEAKER_03: So, just like everything else, the local jurisdiction has to decide what it's going to do with that administrative guidance.
• 12:24
  SPEAKER_03: In some cases, the jurisdiction may have a mechanism to immediately bring in that administrative guidance, but in many cases, you actually have to go through a legislative process.
• 12:34
  SPEAKER_03: So, so this just as an overall matter has been evolving for years and 25 isn't going to be any different.
• 12:41
  SPEAKER_03: Now, when I think about 2024, obviously companies where for the jurisdictions where a piece of the, you know, at least one piece of Pillar 2 has been enacted, those have been baked into the financial statements, the effective tax rate for the year of 2024.
• 12:56
  SPEAKER_03: But if you think about what companies have been doing through this, they've been developing their process, they've been developing an estimate, and frankly, refining that throughout the year as either legislative developments have happened to change things or just as their facts have evolved.
• 13:12
  SPEAKER_03: So when we think about that, that's been a big aspect.
• 13:14
  SPEAKER_03: And now as we head into the end, year end of 2024, you're looking at some of the incremental audit efforts that are going to be happening.
• 13:21
  SPEAKER_03: You know, for some companies, pillar two ended up not being material or they're looking like it's not going to be material for 2024, but that might be because of a safe harbor, for example.
• 13:31
  SPEAKER_03: Those safe harbors might be temporary, depends on which one you're looking at.
• 13:35
  SPEAKER_03: But important in that is even the evaluation of the applicability of a safe harbor is simply not black and white.
• 13:43
  SPEAKER_03: And so I mentioned, you know, a point at the conference that I think is really important.
• 13:48
  SPEAKER_03: Many companies are relying on this transitional safe harbor using their country by country reports.
• 13:55
  SPEAKER_03: Just as a simple example of like the importance of bringing together tax and financial organization within a company.
• 14:02
  SPEAKER_03: So part of the OECD guidance that came out, the administrative guidance, deals with this particular safe harbor.
• 14:08
  SPEAKER_03: And basically, what that guidance said is that very often in the middle of a year-end closing, companies might make some adjustments or entries at the consolidated level.
• 14:21
  SPEAKER_03: And then typically the next period, so often referred to as period 13, so January, they'll push those down into the respective ledgers for the for the uh subsidiaries.
• 14:31
  SPEAKER_03: Uh, this administration, a piece of administrative guidance that came out, basically said that that push down in certain cases may actually disqualify a company's CBCR, country by country report, from being qualified and therefore disqualify them from being able to use the safe harbor.
• 14:47
  SPEAKER_03: Now, clearly, that would be a very big challenge if you believe throughout the whole year that you're gonna rely on that safe harbor.
• 14:54
  SPEAKER_03: So that is a lot of the work.
• 14:56
  SPEAKER_03: When you say what are companies looking at, that's a lot of work that companies are doing now as they rocket into year-end close cycle and um really making sure they have the documentation, that they have the support for their qualification.
• 15:09
  SPEAKER_03: And then frankly, working with across the organization to make sure that they actually are qualifying in those.
• 15:15
  SPEAKER_06: I imagine you've gotten a ton of questions.
• 15:17
  SPEAKER_06: I mean, you may even have when you were on stage at the conference where these questions are rolling in on the pad in on the iPad or whatever it is.
• 15:24
  SPEAKER_06: Uh you've been getting a lot of questions on that.
• 15:26
  SPEAKER_06: I mean, are people surprised by that?
• 15:27
  SPEAKER_06: I mean, I will tell you that in the room, you know, the speaker room, but when we were watching kind of your your you talking about it, there were like a couple people were like, what?
• 15:37
  SPEAKER_06: Like, so I think, I mean, is this sounds like it it's probably a surprise to some people?
• 15:42
  SPEAKER_06: I mean, at least people who are not as, you know, in the weeds like you are.
• 15:46
  SPEAKER_03: Yeah.
• 15:47
  SPEAKER_03: So I mean, the guidance, the administrative guidance has been out for a little bit, but it has been a topic of conversation, really getting from the tax teams to be talking to their financial um accounting counterparts.
• 15:59
  SPEAKER_03: But it is a surprise, or the difficulty of complying with this.
• 16:03
  SPEAKER_03: And the frankly, I from a financial from sort of the accounting folks in companies, what I get when I travel around in these conversations, is just a level of call it fatigue.
• 16:15
  SPEAKER_03: How do you even stay on top of each of these pieces of guidance coming out and how it applies?
• 16:21
  SPEAKER_03: And and the trick is it's based on financial statement income.
• 16:24
  SPEAKER_03: So every gap decision you make has an impact.
• 16:29
  SPEAKER_03: And and the questions that come up, even around how to account in a pillar two picture, how do you account for intercompany transactions?
• 16:38
  SPEAKER_03: This is like, you know, been the source of two years plus of debate.
• 16:42
  SPEAKER_03: Um, so I think that's what I hear from a lot of companies from the accounting side as well as the tax side, but just a level of how to be in front of it and it, you know, and some level of frustration from a lot of folks, right?
• 16:54
  SPEAKER_03: Clearly a low.
• 16:55
  SPEAKER_03: I mean, pillar two has been something that people have certainly um had strong feelings about, if you might imagine.
• 17:02
  SPEAKER_06: I can imagine.
• 17:03
  SPEAKER_06: If you might imagine.
• 17:03
  SPEAKER_06: I've heard just a small portion of it, but definitely.
• 17:06
  SPEAKER_06: I think like I thought the one thing I do want to refer our listeners to is we we did actually publish uh an in-depth um that on on our coverage of the AI CPA conference.
• 17:15
  SPEAKER_06: And well, it doesn't get into the weeds on a lot of the some of these panels at least.
• 17:20
  SPEAKER_06: Um there there is a a coverage or a mention of kind of what the staff said at the conference, the SEC staff said, about disclosures and filings about Pillar 2.
• 17:28
  SPEAKER_06: So encourage folks to read that and and kind of do some um some digging on that point.
• 17:33
  SPEAKER_06: Um, so so let's turn to um you know the latest uh with respect to the FASB's disclosure standard.
• 17:40
  SPEAKER_06: You know, obviously it's not not going to be effective for this year end.
• 17:43
  SPEAKER_06: Certainly would be something the company should be thinking about with respect to uh SAB 74 disclosures, so those early disclosures about the potential impacts, obviously just disclosure, so it may or may not be something that a company determines to be material.
• 17:56
  SPEAKER_06: But again, uh that staff accounting bulletin is out there for companies to take a look at.
• 18:00
  SPEAKER_06: So what can companies do now to prepare for adoption in the future?
• 18:04
  SPEAKER_03: Yeah, I think you just said it.
• 18:06
  SPEAKER_03: It's prepare.
• 18:07
  SPEAKER_03: You know, it's to take advantage of the time that you have right now and to not underestimate the effort it's going to take to adopt that standard.
• 18:14
  SPEAKER_03: So just taking a step back for a minute, obviously the standard essentially looks to provide additional information for investors or users of the financial statements through disaggregation.
• 18:27
  SPEAKER_03: So disaggregation of the effective tax rate and disaggregation of cash taxes paid.
• 18:32
  SPEAKER_03: The level of disaggregation is something that, you know, we've never seen in a tax footnote before.
• 18:37
  SPEAKER_03: And even the example that's in the standard, uh, in the final standard, just gives you a picture of just how much information is going to be necessary.
• 18:45
  SPEAKER_03: And so what we've seen companies doing, you know, I spend a lot of time with companies who've actually started to model that, in many cases, even using 23 data and running it through and saying, what will it look like under the under the final standard?
• 18:58
  SPEAKER_03: And so today, as I sit here again, rocketing towards the year end, it's another opportunity.
• 19:05
  SPEAKER_03: Use that 24 data, put it into the new standard, into that new format.
• 19:10
  SPEAKER_03: Because across the board, what we find when companies do that is there are surprises or there are questions, like how do I treat this item?
• 19:17
  SPEAKER_03: I've never even thought about disaggregating that before.
• 19:21
  SPEAKER_03: You know, these three things naturally go together, but are you telling me in the standard I got to pull them all in their pieces?
• 19:26
  SPEAKER_03: And that's absolutely what you need to do in most cases.
• 19:30
  SPEAKER_03: So, you know, I think that's the key.
• 19:32
  SPEAKER_03: I just don't think you can underestimate the, frankly, the benefit of running that through now from a data, from a systems process perspective, so that you can find out do I have any data gaps?
• 19:43
  SPEAKER_03: Do I have any questions that I can get in front of and address?
• 19:47
  SPEAKER_03: So that when I get to 25, I'll say two things.
• 19:51
  SPEAKER_03: One, you're actually ready for 25, but the standard it requires prospective adoption, but it allows for retrospective.
• 19:59
  SPEAKER_03: And the reality is some companies might look at that and say, I want to adopt retrospectively.
• 20:04
  SPEAKER_03: And so to the extent you do, that's not something you want to be pulling together in 25, right?
• 20:10
  SPEAKER_03: Yeah.
• 20:10
  SPEAKER_03: You pull it together, you use it for your benefit, and then you have the flexibility, whether you do it prospectively or retrospectively, you have the flexibility to make those choices.
• 20:19
  SPEAKER_03: But you've already got your data together in a way that allows you to produce that footnote.
• 20:26
  SPEAKER_03: So that's really the message.
• 20:28
  SPEAKER_03: Um, we actually issued when the standard first uh was finalized, we issued an in-depth, but this summer, or I guess summer, fall, the time is blending together for me.
• 20:39
  SPEAKER_03: But we issued, we put some additional FAQs into that.
• 20:42
  SPEAKER_03: And those FAQs are coming directly from questions from clients, really, where they were running the model and said, How do I treat this?
• 20:50
  SPEAKER_03: And does that make sense?
• 20:52
  SPEAKER_03: So I think you know, I think that's the answer is prepare.
• 20:55
  SPEAKER_06: Look, I I think, and I think that's great advice, right?
• 20:57
  SPEAKER_06: I I love the the anytime that there is a complex, a complex disclosure requirement or or a new accounting standard, we talk about this all the time, but a dry run is is certainly very helpful.
• 21:08
  SPEAKER_06: Like we said it with respect to even cybersecurity disclosures, incident reporting.
• 21:12
  SPEAKER_06: Like you do a dry run, you'll understand the impacts, and you'll you often find things so that you know what when it when it does happen, when when you do have to adopt or you do have to respond, you're in a position to do so.
• 21:22
  SPEAKER_06: And you're not focused on, you know, all of these other challenges, you're in a position to say, here's where we are, we can do it, and we can do it quickly, and we can focus on what matters at that point in time, um, rather than okay, now we got to do all this, all of this work.
• 21:36
  SPEAKER_06: Um, it can be a lot of noise.
• 21:37
  SPEAKER_06: So um agreed.
• 21:39
  SPEAKER_06: Obviously, very, very significant, substantial change.
• 21:43
  SPEAKER_06: Um, you know, when you look at you know the the the disclosures, you know, and kind of the examples of what some of the things I've seen, I'm like, oh, this is a lot, right?
• 21:50
  SPEAKER_06: It's a lot of information.
• 21:51
  SPEAKER_06: So that effective date is is gonna come faster than we think.
• 21:54
  SPEAKER_06: So let's switch gears.
• 21:56
  SPEAKER_06: And and this is an area where I actually am very interested in, and I know our fan favorite um as.
• 22:00
  SPEAKER_06: Well, is you know, the topic of uncertain tax positions.
• 22:03
  SPEAKER_06: Any advice on what companies should be thinking about for year end?
• 22:06
  SPEAKER_03: Yeah.
• 22:07
  SPEAKER_03: So anytime I start talking about uncertain tax positions or UTPs, as I'm sure I will refer to it, I think the important basics, there's no change in the model.
• 22:17
  SPEAKER_03: It's a two-step model, recognition and measurement.
• 22:20
  SPEAKER_03: Recognition is what does the position meet the more likely than not to be sustained threshold under the technical merits.
• 22:29
  SPEAKER_03: So it's just technical merits at that point.
• 22:31
  SPEAKER_03: Then if you hit recognition, you go into measurement, and that's where you're looking at cumulative probability and figuring out how what is the amount, the greatest amount of benefit that should be recognized over 50% in the financial statements.
• 22:43
  SPEAKER_03: So no change around that.
• 22:46
  SPEAKER_03: But uncertain tax positions, making that assessment, it's not a one and done.
• 22:50
  SPEAKER_03: It is a continual process.
• 22:52
  SPEAKER_03: You need to be assessing those UTPs every period.
• 22:56
  SPEAKER_03: And I just can't stress enough, you need to be documenting your assessment of those periods.
• 23:00
  SPEAKER_03: Sorry, in each of those.
• 23:02
  SPEAKER_06: I'm glad you said that.
• 23:03
  SPEAKER_03: Yeah, documentation of that is really important.
• 23:05
  SPEAKER_03: It's documentation of the judgments, how you assessed, how you evaluated any new information and all that goes with it.
• 23:11
  SPEAKER_03: So none of that has changed, but it's an important topic to continually remind ourselves that it's not a one-and-done analysis.
• 23:18
  SPEAKER_03: And this year in 2024, we had a couple of huge developments that clearly did impact in some cases, um, in some cases, materially, the assessment of uncertain tax positions.
• 23:28
  SPEAKER_03: So I think it's worth just hitting on them.
• 23:31
  SPEAKER_03: And amazingly, I think they both happened in Q3.
• 23:34
  SPEAKER_03: So um, so the first case is Loper Bright.
• 23:38
  SPEAKER_03: And this is a case, it's actually not a tax case.
• 23:40
  SPEAKER_06: And this is the one I'm familiar with.
• 23:42
  SPEAKER_06: The other one I'm not familiar with.
• 23:44
  SPEAKER_03: So All right.
• 23:45
  SPEAKER_03: Well, you can comment on this one.
• 23:47
  SPEAKER_03: So Loper Bright, not a tax case, but it's Supreme Court case.
• 23:50
  SPEAKER_03: And in that, basically, the court, the Supreme Court, very important, overturned the Chevron Doctrine.
• 23:56
  SPEAKER_03: And essentially, the Chevron Doctrine is an old case that basically required that federal courts defer to a federal agency's reasonable interpretation of ambiguous statutes.
• 24:10
  SPEAKER_03: So that's a mouthful.
• 24:11
  SPEAKER_03: But at the end of the day, what that really means in the tax world is when we get into these debates as to whether or not a regulation that Treasury has issued is valid.
• 24:22
  SPEAKER_03: Did they have the authority to issue the guidance that's included in a regulation?
• 24:27
  SPEAKER_03: Under Chevron, the court wouldn't really get into a debate about interpreting that statute.
• 24:33
  SPEAKER_03: They'd be looking at the agency's actions and whether they took the right steps in their process.
• 24:39
  SPEAKER_03: But with the overturning, essentially that's likely to lead to greater divergence in courts on the interpretation of these validity arguments.
• 24:47
  SPEAKER_03: And I think you mentioned this in Q3 in our external accounting webcast.
• 24:53
  SPEAKER_03: This is well beyond taxes, right?
• 24:56
  SPEAKER_03: So here it's a question of what kind of authority will actually need to be granted when you think about other federal agencies.
• 25:04
  SPEAKER_03: And I think the example you gave was around climate.
• 25:06
  SPEAKER_03: And so this idea of if the SEC hasn't been given specific guidance from Congress to go write rules, do they have the authority to write those rules?
• 25:15
  SPEAKER_03: And so I think this is a really important case, like across the board.
• 25:20
  SPEAKER_03: So I think it's really important for companies to be thinking about that.
• 25:23
  SPEAKER_06: I gotta admit, I did not expect you to pull that reference to that prior webcast.
• 25:30
  SPEAKER_06: But I do think it's a great point, right?
• 25:31
  SPEAKER_06: Because we're looking at a broader impact across all uh agencies.
• 25:35
  SPEAKER_06: Uh so big, big changes there.
• 25:37
  SPEAKER_06: Big changes.
• 25:38
  SPEAKER_06: Well, what's what's the uh what's the other thing?
• 25:40
  SPEAKER_03: Yeah, so the other case is varian, uh, varian medical systems.
• 25:44
  SPEAKER_03: And this, I won't get into all of the details, but this is a tax case.
• 25:47
  SPEAKER_03: This is a U.S.
• 25:48
  SPEAKER_03: tax court case.
• 25:49
  SPEAKER_03: And it is another case in the line where the court has held that the statutory language enacted by Congress is clear and unambiguous and therefore cannot be overridden by Treasury regulations.
• 26:03
  SPEAKER_03: And that's even when Treasury believes the their interpretation and the reason for issuing those regs is for an overarching policy concern.
• 26:13
  SPEAKER_03: So there are court cases prior to Loper, I will say, that have landed about this, you know, statutory language is clear and unambiguous.
• 26:23
  SPEAKER_03: But in Varian, they specifically reference the Loper case.
• 26:26
  SPEAKER_03: So Loper was July, Varian was in August.
• 26:29
  SPEAKER_03: And so really Varian is the first and very quick turnaround there application of the conclusion by the Supreme Court in Loper.
• 26:37
  SPEAKER_03: And in fact, Looper was mentioned in the Varian decision.
• 26:41
  SPEAKER_03: So this Varian case is very substantial.
• 26:44
  SPEAKER_03: It did result in some changes for some companies because um the issue itself goes back to TCGA and frankly the effective date of two different provisions and actions that companies took applying the law as it's written.
• 26:58
  SPEAKER_03: And so that really has caused companies to look at their positions in a whole host of areas to figure out what that really means.
• 27:06
  SPEAKER_03: And again, looking at that through the lens of are those regs valid and what might that mean to my tax positions.
• 27:14
  SPEAKER_06: I mean, there is a lot going on.
• 27:16
  SPEAKER_06: Um, my head is spinning.
• 27:18
  SPEAKER_06: Um, and and I, you know, I just think about you know, conversations I've had with with you know, you know, a few of our tax partners, um, kind of, you know, out in the practice and serving clients.
• 27:28
  SPEAKER_06: And um, you know, I know you spend a lot of time with those folks, but it's just a a lot going on, you know, not just busy over the last, you know, whatever period of time, but then what we expect to see over the next couple of years.
• 27:40
  SPEAKER_06: It's going to be very, very busy.
• 27:42
  SPEAKER_06: You will be very, very busy, but also in high demand because you are kind of the fan favorite of our podcast and webcasts.
• 27:50
  SPEAKER_06: So um, so I'm a little bit afraid to ask you this, but I will.
• 27:54
  SPEAKER_06: What else?
• 27:55
  SPEAKER_03: Yeah, there's probably a few topics that we can hit on just to round out.
• 27:58
  SPEAKER_03: But one, probably the other area that we spend the most time talking about are the IRA credits.
• 28:05
  SPEAKER_03: So, I mean, look, this is, I think the estimates are over 900 billion over a period of like 10 years.
• 28:10
  SPEAKER_03: And so we see clients um looking at this, companies looking at this in all different respects.
• 28:16
  SPEAKER_03: So the credits, um, there was a long list of credits to start with.
• 28:21
  SPEAKER_03: Some credits introduced direct pay, which is basically a refundable credit.
• 28:26
  SPEAKER_03: Refundable credits in and of themselves aren't necessarily new, um, but it it had some unique aspects to it.
• 28:33
  SPEAKER_03: And then also introduced transferable credits, which had existed, but only on a small, small scale.
• 28:39
  SPEAKER_03: Transferable credits under IRA is substantial.
• 28:42
  SPEAKER_03: And so you see companies that are the generators of the credits, and again, they have the opportunity in some of those credits to go get direct pay.
• 28:50
  SPEAKER_03: Other cases, they might have a transferable credit.
• 28:52
  SPEAKER_03: So if they can't monetize it themselves, they might be uh selling it to a third party.
• 28:57
  SPEAKER_03: So as a result, you've got different mechanisms of monetizing those credits, and then you have the buyers, right?
• 29:02
  SPEAKER_03: So you have companies that are out there that will buy these credits, it has a reduction, then ultimately when they use those credits on their on their cash taxes payable.
• 29:11
  SPEAKER_03: And so across the board, a lot going on, a lot of variety.
• 29:16
  SPEAKER_03: And importantly, on the accounting space, very little guidance.
• 29:20
  SPEAKER_03: So there's very little direct guidance dealing with activities around the credits, at least as of this moment.
• 29:26
  SPEAKER_03: So currently, in many cases, looking at refundable or transferable credits, there are decisions to make.
• 29:32
  SPEAKER_03: And in many cases, companies are analogizing actually to an IFRS standard because they do have a government grant standard.
• 29:39
  SPEAKER_03: But this is gonna be an area where we're seeing a lot of accounting going on right now, how to address UTPs when you're buying those, indemnifications, all of that happening now.
• 29:48
  SPEAKER_03: But this is an area where I say companies are really gonna wanna watch what's going on on US standard setting as well, because we do have an exposure draft for government grants.
• 29:59
  SPEAKER_03: So when you look at those standards, like if you look at the government grant standard, the exposure draft that is, you want to look at that and think about what impact, if any, that's going to have on what you're doing today.
• 30:10
  SPEAKER_03: So, for example, the government grant standard closely models after IS-20.
• 30:15
  SPEAKER_03: So if you're analogizing to that, you might think it's okay.
• 30:18
  SPEAKER_03: However, um, there are some key differences, including the scope of that standard that are different than IS-20.
• 30:25
  SPEAKER_03: So now, when you look at that standard, you might raise a question of whether transferable credits doesn't look like it's in the scope of that.
• 30:32
  SPEAKER_03: So now where we've we're today analogizing to an international standard, does that mean that the company will analogize to a US standard?
• 30:40
  SPEAKER_03: What does that look like?
• 30:41
  SPEAKER_03: So comment periods wide open right now.
• 30:43
  SPEAKER_03: There's a lot to think about.
• 30:45
  SPEAKER_03: And this is an area where I think there's a lot of companies across industries that are impacted by these credits.
• 30:51
  SPEAKER_03: So it's important to take a look at some of that.
• 30:53
  SPEAKER_03: Yeah, you got to pay attention.
• 30:54
  SPEAKER_06: That's very that's very interesting.
• 30:56
  SPEAKER_06: So it wouldn't be a year-end podcast, uh income tax podcast, with without a mention of considerations for valuation allowances.
• 31:03
  SPEAKER_06: What do you have there?
• 31:04
  SPEAKER_03: So reminders are always good in this space, highly judgmental area.
• 31:09
  SPEAKER_03: But while it's judgmental, the standard actually gives you a fair bit of guidance on how to apply that.
• 31:14
  SPEAKER_03: Four sources of future taxable income, you look at both positive and negative.
• 31:18
  SPEAKER_03: And it's really important.
• 31:20
  SPEAKER_03: You can't just look at the negative, and you also can't just look at the positive.
• 31:24
  SPEAKER_03: You look at that evidence based on what is most objectively verifiable.
• 31:28
  SPEAKER_03: And so when you look at this, it is inevitably judgmental.
• 31:33
  SPEAKER_03: There's nothing so much special going on this year and years past, when we saw the interest rate movements, that obviously caused a huge number of conversations in certain industries around valuation allowance.
• 31:43
  SPEAKER_03: I feel like that's a little bit quiet right now, but clearly as we look at what's going on, as we think about interplays with tax law, as we think about some of these regs that are coming in, those all have the potential to impact some aspect of the realizability of your deferred tax assets.
• 31:59
  SPEAKER_03: So, like anything, just like we talked about with UTPs, this is an assessment that has to happen every period.
• 32:05
  SPEAKER_03: Year end is no different.
• 32:07
  SPEAKER_03: It tends to get a lot of activity because companies are seeing their full year and they're refining their forecast for the next year.
• 32:13
  SPEAKER_03: So, you know, it's a it's a typical time of year that you get a lot of discussion on it, and this year should be no different.
• 32:18
  SPEAKER_06: You know, it's it's it's one of those areas too where the SEC staff with the this is in the tax space, probably one of the most common areas for comment, right?
• 32:27
  SPEAKER_06: You know, the staff is is is focused on it.
• 32:29
  SPEAKER_06: And I I know I used to focus on it and ask those questions.
• 32:32
  SPEAKER_06: Um, and and really I love the point about the positive and the negative that um highlighting that is is is key.
• 32:38
  SPEAKER_06: Um so so we're about to wrap up.
• 32:40
  SPEAKER_06: Any other words of advice or or key reminders uh for companies that they head into year end?
• 32:46
  SPEAKER_03: Look, from my perspective, and I've probably given this same re response every time I've been asked this question for I don't know how many years now, but I don't think you can say it too many times.
• 32:57
  SPEAKER_03: The only thing that's been constant or consistent in taxes is change.
• 33:03
  SPEAKER_03: And so the reality is that it really doesn't matter what period we're in, having the people and processes in place to understand what's coming down the pike, understand what matters to you as a company, be able to respond versus react to developments because you've already spent some time thinking about what those impacts might look like.
• 33:24
  SPEAKER_03: That might include modeling, whatever and however you you get through that, it's about knowing what's out there.
• 33:31
  SPEAKER_03: There are going to be things that come up that you can't anticipate.
• 33:34
  SPEAKER_03: But when you look at tax law, when you look at the process of getting something through the law, when you look at cases and how it takes to get through the courts, there is an awful lot of information that you can really be looking at before it hits your desk and you need to do something about it.
• 33:49
  SPEAKER_03: So it's that would be to me, every topic we've had today, it's all about being prepared by being in front of it.
• 33:57
  SPEAKER_06: Yeah.
• 33:57
  SPEAKER_06: I mean, the the other, you know, as I kind of you were earlier talking about uh you know kind of tax policy, and I I immediately thought of policy on demand.
• 34:06
  SPEAKER_06: So, you know, I I know that that's uh you know a good resource, right?
• 34:10
  SPEAKER_06: For for you know, to take a look at that.
• 34:12
  SPEAKER_06: You know, it's it's a lot of information.
• 34:14
  SPEAKER_06: Um what else is out there?
• 34:16
  SPEAKER_06: Where where else can our listeners go to find resources on income tax accounting and reporting?
• 34:20
  SPEAKER_06: Because I know you're you publish a lot of this.
• 34:23
  SPEAKER_03: Um yeah, so we have uh, you know, there's a number of places you can go, but right on pwc.com, but we've got, frankly, we have other podcasts we've put out where we've hit on some of the basics like UTPs, valuation allowance, separate company reporting, a lot of action out there.
• 34:38
  SPEAKER_03: So you can look at those that tax toolkit.
• 34:41
  SPEAKER_03: In-depths are a great source.
• 34:42
  SPEAKER_03: So you mentioned some of what we've released, but in Pillar 2, a couple years now, we released an in-depth, but then this year we actually released FAQs that are really getting to some of the most common questions that we're hearing coming up.
• 34:55
  SPEAKER_03: And we just updated it, an updated FAQ.
• 34:58
  SPEAKER_03: Make sure you're touching base with that early, you know, often.
• 35:01
  SPEAKER_06: Um often do you update that, or is it just based on whatever's happening and whether something should be, hey, this is so significant we have to update it.
• 35:09
  SPEAKER_03: Yeah, that's right.
• 35:10
  SPEAKER_03: It's that it's when we have either a number of questions in some the from a number of sources on a certain area.
• 35:17
  SPEAKER_03: We'll try to get that content out.
• 35:19
  SPEAKER_03: The content we just released fits that.
• 35:22
  SPEAKER_03: It's been also a result of a technical inquiry with the FASB around separate company reporting and what that accounting looks like for pillar two.
• 35:29
  SPEAKER_03: So that was a number of the questions, not all of them, but that was a number of the questions we just put.
• 35:34
  SPEAKER_03: So we really try to do it based upon real time.
• 35:37
  SPEAKER_03: What are the questions we're getting that seem to be pretty pervasive?
• 35:40
  SPEAKER_03: And we try to hit that.
• 35:41
  SPEAKER_03: And that's the same thing with the FAQ that I mentioned before on the disclosure project.
• 35:46
  SPEAKER_03: So we'll continue to look at that as companies that we start to see consistent questions.
• 35:50
  SPEAKER_03: We'll also try to update that just to try to be as useful as we can as far as what others are experiencing so you know people can leverage that knowledge.
• 35:58
  SPEAKER_06: So well, Jen, that was fantastic.
• 36:01
  SPEAKER_06: And we actually covered a lot of topics in a in a short period of time.
• 36:04
  SPEAKER_06: I know our listeners will will really appreciate it, especially as they're grappling with all of these challenges.
• 36:10
  SPEAKER_06: And I'd say, um, you know, kind of all the podcasts that I've done over the last, you know, month or so.
• 36:16
  SPEAKER_06: Um, I think this is one of those more challenging areas that that preparers need to be paying attention to.
• 36:20
  SPEAKER_06: So I really want to thank you for taking the time to spend with me to talk about this.
• 36:26
  SPEAKER_06: Really appreciate it.
• 36:27
  SPEAKER_03: Thanks for having me.
• 36:29
  SPEAKER_02: That's our show for today.
• 36:31
  SPEAKER_02: Tune in next week for more fresh episodes so that you never miss any of our audio content.
• 36:37
  SPEAKER_02: Follow the PwC Accounting Podcast wherever you listen to your podcasts.
• 36:42
  SPEAKER_02: And to stay up to date on all our latest accounting and reporting news, sign up for our newsletter at viewpoint.pwc.com.
• 36:51
  SPEAKER_02: From Thought Leadership at PwC, I'm Heather Horn.
• 36:56
  SPEAKER_02: Thanks for tuning in.
• 37:02
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• 37:06
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• 37:08
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