Tax Expenditure Project

FASAB Contact, Wendy M. Payne, paynew@fasab.gov, 202-512-7357

Request for Comment Comment Letters Final Pronouncement
Tax Expenditures: Management’s Discussion and Analysis and Disclosure Requirements (PDF) Comment Letters Tax Expenditures (PDF)

Project Objective:

Tax expenditures are defined under the Congressional Budget and Impoundment Control Act of 1974, as amended, (the “Budget Act”) as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” Tax expenditures are reductions in income tax liabilities arising from special tax provisions or regulations that provide tax benefits to particular taxpayers. They are sometimes viewed as a means of accomplishing budget policy objectives without direct outlay of federal funds.

Current accounting standards do not require information regarding tax expenditures but discuss presentation of such information. Statement of Federal Financial Accounting Standards 7 provides that: Information on tax expenditures that a reporting entity considers relevant to the performance of its programs may be presented, but should be qualified and explained appropriately to help the reader assess the possible impact of specific tax expenditures on the success of the related programs.

Since SFFAS 7 was issued, the number and amount of tax expenditures have grown and the Government Performance and Results Act Modernization Act of 2010 (GPRA MA) (Public Law 111-352) now requires identification of tax expenditures contributing to performance goals and consideration of their performance.

Through this project the Board will explore what information readers of federal financial reports need regarding tax expenditures to aid in understanding the financial operations of government.

Reference Material:

Joint Committee on Taxation Tax Expenditure Publications

Office of Management and Budget Analytical Perspectives

US Department of Treasury Office of Tax Analysis Publications

US Government Accountability Office – Tax Expenditures Key Issue

 

HISTORY OF BOARD DELIBERATIONS (reverse chronology)

June 21-22, 2017 Board Meeting

On May 31, 2017, FASAB issued SFFAS 52, Tax Expenditures. SFFAS 52 requires narrative disclosures and information regarding tax expenditures. According to Chairman Showalter, the new standards, which affect disclosures in the consolidated financial report of the U.S. Government, “will help users understand tax expenditures, their general purposes, impact on tax collections, and contribution to program costs.”

April 26-27, 2017 Board Meeting

This project was not discussed at the April 2017 meeting.

February 22, 2017

At the February meeting, the Board approved Statement of Federal Financial Accounting Standards 52, Tax Expenditures, with seven affirmative votes and two abstentions. The Statement will be issued on May 31, 2017, pending the sponsor review period.

Issue Paper for February 2017 – Tab B (PDF)

October 19-20, 2016 Board Meeting

The Board reviewed responses to the proposed standards. Generally, respondents were supportive, but many acknowledged the complexity of the topic. These respondents provided valuable suggestions for clarifying the nonauthoritative illustration. These suggestions will be helpful upon implementation by the Department of the Treasury (Treasury). However, refining a nonauthoritative illustration would not be useful to Treasury, and members decided to remove the illustration from the Statement.

Other suggestions from respondents will be addressed in the basis for conclusions. The Board expects to review and approve the final Statement in December and January.

Issue Paper for October 2016 – Tab 5

August 24-25, 2016 Board Meeting

The Tax Expenditure project was not discussed at the August 2016 meeting.

June 29-30, 2016 Board Meeting

The Tax Expenditure project was not discussed at the June 2016 meeting because the exposure draft was released on June 2, 2016.

April 27-28, 2016 Board Meeting

The Board provided final edits to the proposed tax expenditures exposure draft. The proposal is expected to be released for comment in early June.

Issue Paper for April 2016 – Tab A

February 24-25, 2016 Board Meeting

The Board reviewed a draft ED regarding tax expenditures and tentatively approved most provisions with minor edits. With the Board’s revisions, the proposed standards would require the consolidated financial report of the U. S. Government (CFR) to (1) include narrative disclosures and information regarding tax expenditures and (2) alert readers regarding the availability of more detailed reports on tax expenditure estimates, such as those published annually by the Department of the Treasury’s Office of Tax Policy.

The specific information provided in the CFR would include

  • the definition of tax expenditures,
  • their general purpose,
  • their impact on and treatment within the federal budget process, and
  • their impact on the government’s financial position and condition.

Next steps include providing a completed draft proposal for review at the April meeting.

Issue Paper for February 2016 – Tab A

December 2015 Board Meeting

The Board received task force recommendations. The recommendations were:

  1. To include an introduction section to educate readers of the Board’s exposure draft
  2. To require narrative disclosures regarding tax expenditures within the Summary of Significant Accounting Policies and notes relating to collections and refunds of federal revenue, and the Management’s Discussion and Analysis (MD&A) section. These disclosures should include:
    1. the definition of tax expenditures,
    2. their general purpose,
    3. their impact on and treatment within the Federal Budget process, and
    4. their impact on the government’s financial position and fiscal sustainability.
  3. To require the use of hyperlinks to alert readers to the location of more detailed reports including estimates and explanations of each tax expenditure

The task force provided three options regarding presentations of estimates:
A – Other Information: To encourage the inclusion of tax expenditure estimates published annually by Treasury’s Office of Tax Policy within the Other Information (OI) section of the government-wide financial report.

B – Required Supplementary Information: To require the inclusion of tax expenditure estimates published annually by Treasury’s Office of Tax Policy within the Required Supplementary Information (RSI) section of the government-wide financial report.

C – Narrative per Recommendation 2 with No Estimates: To not require the inclusion of tax expenditure estimates in the Required Supplementary Information section or encourage the inclusion of these estimates in the Other Information section at this time.

The Board tentatively adopted the first three recommendations with technical and editorial changes. The Board tentatively adopt option A regarding presentation of estimates.

Briefing Materials (PDF)

December 4, 2015 Task Force Meeting

The task force met to finalize recommendations for the Board.

Briefing Materials (PDF)

October 2015 Board Meeting

The Board provided comments on the draft background paper developed by the task force.

Briefing Materials (PDF)

October 9, 2015 Task Force Meeting

The task force met to discuss the recommendations and revisions to the background paper.

Minutes and Briefing Materials (PDF)

September 11, 2015 Task Force Meeting

The task force met to discuss the audit implications of required supplementary information. In addition, the task force reviewed revisions to the background paper.

Minutes and Briefing Materials (PDF)

August 2015 Board Meeting

The Board received an update on the work of the task force.

Briefing Materials (PDF)

August 14, 2015 Task Force Meeting

The task force met to review drafts and discuss illustrations.

Minutes (PDF)

July 11, 2015 Task Force Meeting

The task force met to review revisions to the background paper first discussed at the June meeting. In addition, the overall structure of the government-wide financial report including components of management’s discussion and analysis were discussed.

Minutes and Briefing Materials (PDF)

June 11, 2015 Task Force Meeting

The task force kickoff meeting materials included an introduction to the project and a draft background paper on tax expenditures. Members of the task force discussed the nature of tax expenditure estimates, the purpose of financial reports, and the content of the background paper. The background paper is a key component of the proposal because many potential respondents to any future proposal may not be familiar with the topic.

Agenda and Briefing Materials (PDF)

Minutes (PDF)

February 25-26, 2015 Board Meeting

The Board discussed definitional issues and existing sources of information regarding tax expenditures. The members tentatively agreed to accept the existing definition and to rely on existing estimates of tax expenditures. Most members believed presentation of amounts would be needed to meet federal financial reporting objectives.

Issue Paper for February 2015 – Tab D (PDF)