Due to a “book minimum tax” requirement in the recently passed Inflation Reduction Act of 2022, the Financial Accounting Standards Board (FASB) may have congressional lobbyists biting at its heels (IRA). Since the 1980s, there hasn’t been a business AMT based on book income from financial statements. And many people in the accounting industry Herndon, VA CPA, are furious about it.
There is a minimal tax provision on the books.
The taxable income for federal income tax purposes may differ dramatically from the book income that a corporation reports on its income statement. Companies that report adjusted financial statement income (AFSI) of more than $1 billion will be required to pay a minimum tax rate of 15% on that income under the IRA, a $740 billion package with provisions on health care, the environment, and taxation.
The minimum tax under the IRA is calculated starting with book income, as opposed to prior computations of the corporate alternative minimum tax, which began with taxable income. The computation of AFSI permits exclusions for items like general business credits and defined pension benefits, in addition to permitting the use of net operating losses and foreign tax credits. According to the federal tax code, a late adjustment also permits accelerated depreciation to lower AFSI.
The FASB creates U.S. Generally Accepted Accounting Principles (GAAP) for public and private businesses as well as not-for-profit organizations in the country. This regulatory body is intended to be free from corporate and Congressional influence.
The book minimum tax rule, however, has the potential to give the FASB substantial control over part of the money the federal government receives, which could have important financial ramifications for American businesses.
This clause will go into effect for tax years starting after December 31, 2022. Any corporation that satisfies the average annual AFSI test for one or more prior tax years after December 31, 2021, is subject to it (apart from S corporations, regulated investment companies, and real estate investment trusts). According to the Joint Committee on Taxation’s assessment, approximately 150 corporate taxpayers would be liable for this tax each year.
Federal tax income may be directly affected by changes made to financial accounting regulations. Congress might thus become more interested in the FASB’s work in the future and lobby for or against particular adjustments. For lobbyists and special interests, accounting rules may become a target.