Deferred Tax Assets Will Need to Be Adjusted if Tax Reform Passes Before Year End

• December 8, 2017
• Amanda Garnett

Both the House of Representatives and the Senate have recently passed their initial versions of the tax reform bill. Now Congress is working to reconcile these two very different bills with the goal of creating a final revised version that will be voted on by both chambers and ultimately signed by the President.

It is looking increasingly likely that this process may be completed in late December and that the President could sign the final tax bill on or before December 31, 2017. For C corporations, the corporate tax rate would likely decrease in either 2018 or 2019 with a current proposed rate of 20% (compared to the current maximum tax rate of 35%).

If the final tax bill is signed on or before year end, there could be a significant impact to the deferred tax assets or liabilities recorded by financial institutions as of December 31, 2017. The current year income tax expense based on 2017 earnings would not be impacted because the tax rate is expected to remain unchanged for the 2017 tax year. But since deferred taxes relate to income and deductions that will be recognized in future tax years when the tax rates will be lower, these accounts would need to be adjusted for 2017.

For banks in a deferred tax asset position, this would likely mean a writedown to the deferred tax assets that would need to be recorded through the 2017 income statement. These adjustments could be significant and may be up to 40% of the balance currently recorded by some institutions.

The CliftonLarsonAllen tax and assurance teams are here to assist you in addressing this issue. Please reach out to us to discuss this further.

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