The additional burdens on accountants and administrators shouldn't be taken lightly. I'll wager not one person in a thousand understands the following accounting-for-income tax issue. I've reproduced the passage in its entirety from the Deloitte analysis, just to give the reader a flavor for what happens when the government bull enters the financial reporting china shop.
ASC 740 implications – The employer’s promise to provide post-retirement prescription drug coverage (coverage) is recorded as a component of the other post-employment benefit (OPEB) obligation. When that coverage benefit meets certain criteria, the employer becomes eligible to receive the Retiree Drug Subsidy, which is then recorded as an offset against the obligation (the obligation is recorded net of the subsidy and the net amount is actuarially determined). In determining the deferred tax asset related to the OPEB obligation, companies have been required to “unbundle” the net amount into the “pre-subsidy” liability and the offsetting subsidy receivable. Since the obligation has historically been deductible when paid, a deferred tax asset has historically been recorded for the future tax deduction related to the grossed-up “pre-subsidy” amount. The unbundled subsidy receivable has not required a deferred tax liability since it has not been taxable when received. With the change in law, the subsidy “receivable” will remain not taxable, but a corresponding amount of liability will become not deductible. Therefore, the expected future tax deduction will be reduced by an amount equal to the subsidy and the corresponding deferred tax asset must be adjusted (reversed in this instance).[Abbreviated translation: some employers provide prescription-drug benefits to retirees. Both these future payments and the future tax benefit of these deductions are recorded on today's balance sheet as a liability and an asset, respectively. The new law reduces the future tax deductions, i.e., lowers the "deferred tax asset", and the write-down is shown on this quarter's income statement and balance sheet.]
Under ASC 740, the expense or benefit related to adjusting deferred tax liabilities and assets as a result of a change in tax laws must be recognized in income from continuing operations for the period that includes the enactment date. Therefore, if President Obama signs the Act into law on or before March 31 as expected, the expense resulting from this change will be recognized in the first quarter of 2010 even though the change in law will not be effective until 2011 or later (however, the deferred tax asset is not adjusted for the part of the OPEB obligation that is expected to be settled prior to the effective date of the new law).
In the event that there is a valuation allowance recorded against the deferred tax asset, the reversal of the deferred tax asset will not result in an immediate deferred tax expense, as the decrease to the deferred tax asset will be offset by a corresponding decrease in the valuation allowance. However, the expense related to the change in the law has only been deferred, since the amount of valuation allowance that can be reversed to tax benefit at a later date (if and when the company returns to profitability) has been permanently reduced.
How many of the people who had a hand in drafting this new law ever gave a thought to the poor souls who have to administer and account for it? How many of them truly understand that the mission of a business is not to administer a Kafka-esque tangle of regulations but to deliver a quality product or service at a low price? I've heard much criticism of health-care and other businesses for spending too much on administration. Well, stop adding to the problem. © 2010 Stephen Yuen