FASAB Proposes Changes in Accounting for Tax Expenditures

The Federal Accounting Standards Advisory Board is proposing changes in how the federal government accounts for tax expenditures.

FASAB chairman D. Scott Showalter said Friday the board is seeking input on the proposed Statement of Federal Financial Accounting Standards, Tax Expenditures: Management’s Discussion and Analysis and Disclosure Requirements.

Generally, tax expenditures are provisions in the tax law available to subsets of taxpayers who engage in certain kinds of activities, face special circumstances, or otherwise meet specified criteria. The government uses tax expenditures to stimulate behavior that will accomplish public policy goals, such as facilitating homeownership, reducing the cost of borrowing for state and local governments, encouraging higher education, and promoting domestic energy production.

The board believes the service efforts, costs, and accomplishments of the U.S. government include those service efforts undertaken, costs incurred through, and accomplishments resulting from the use of tax expenditures. Accordingly, the Board identified a need to improve users’ awareness and understanding of tax expenditures.

The proposed standards would result in the inclusion of key information on tax expenditures to assist users of the consolidated financial report of the U.S. Government in understanding the existence, purpose, and impact of tax expenditures on federal revenues and the overall financial position of the U.S. government. Such information is not currently included in the consolidated financial report, or CFR.

“The financial impact of tax expenditures clearly warrants their disclosure in the financial statements; however, that was not the main driver for this proposed standard,” said Showalter in a statement. “The government can and does use tax expenditures as an alternative to other policy instruments—such as spending or regulatory programs—to address and hopefully to accomplish policy objectives. Because tax expenditures are not explicitly reported as appropriations or displayed in the Statements of Net Cost or Changes in Net Position, we need to shine a light on them. Doing so would allow users to gain a more complete understanding of the service efforts, costs, and factors impacting federal revenues.”

FASB is asking for comments on the exposure draft by Sept. 15, 2016. Respondents are encouraged to provide responses to all of the questions raised and the reasons for their positions. The exposure draft and the questions raised are available on the FASAB website in PDF and Word format.