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ASC 740-10-45-15 requires that the effects of a change in tax law or rates be recognized in the period that includes the enactment date. While the date of enactment is not explicitly defined, we believe that “enactment” occurs when the law has been subjected to the full legislative process.
For US federal tax purposes, the enactment date is most often the date the President signs the bill into law. Enactment can occur in other ways, such as when Congress overrides a presidential veto. The key concept is that the full legislative process is complete. Most states follow the same or similar processes.
Many foreign countries have requirements similar to those in the United States in that an official, such as the President, must sign legislation into law. For others, enactment occurs only after the law is published in an official publication, similar to a federal register.
The SEC, as well as the FASB and the AICPA International Practices Task Force, has long held the view that legislation should not be considered “enacted” until the foreign country’s official signs it into law and the full legislative process is complete (i.e., the law cannot be overturned without additional legislation). Future (i.e., not fully enacted) rate changes cannot be anticipated and should not be recognized.
In the United States, a change in federal tax law or rates may have significant state and local tax effects. The threshold state or local income tax question is whether and how a state or a local jurisdiction conforms to the Internal Revenue Code (IRC). How a particular state or a local jurisdiction adopts the IRC directly affects the application of enacted federal changes to its taxable income computation.
Some states simply begin the determination of state taxable income with federal taxable income (i.e., they do not specifically adopt or reject the IRC). Other states begin with federal taxable income, but generally adopt the IRC in one of three ways:
  • Fixed date conformity: Conformity with the IRC remains fixed as of a specific date until the state legislature adopts a new date
  • Rolling date conformity: State adoption of the IRC conforms to federal amendments automatically
  • Adoption of select sections of the IRC
Companies need to evaluate the conformity rules for each state or local jurisdiction in order to determine the state or local tax effect and relevant income tax accounting.
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