Federal Accounting Standards Advisory Board

ELIMINATION OF CERTAIN DISCLOSURES RELATED TO TAX REVENUE 

TRANSACTIONS BY THE INTERNAL REVENUE SERVICE, CUSTOMS, AND OTHERS

Amending SFFAS 7

 Accounting for Revenue and Other Financing Sources

Statement of Federal Financial Accounting Standards No. 20

September 2001
Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions

September 2001

THE FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD

The Federal Accounting Standards Advisory Board (FASAB or "the Board") was established 

by the Secretary of the Treasury, the Director of the Office of Management and Budget 

(OMB), and the Comptroller General in October 1990. It is responsible for promulgating 

accounting standards for the United States Government.

An accounting standard is typically formulated initially as a proposal after considering the 

financial and budgetary information needs of citizens (including the news media, state and 

local legislators, analysts from private firms, academe, and elsewhere), Congress, federal 

executives, federal program managers, and other users of federal financial information. The 

proposed standard is published in an Exposure Draft for public comment. A public hearing is 

sometimes held to receive oral comments in addition to written comments. The Board 

considers comments and decides whether to adopt the proposed standard with or without 

modification. The Board publishes adopted standards in a Statement of Federal Financial 

Accounting Standards.

Additional background information is available from the FASAB:

• "Memorandum of Understanding among the General Accounting Office, the 

Department of the Treasury, and the Office of Management and Budget, on Federal 

Government Accounting Standards and a Federal Accounting Standards Advisory 

Board," Amended October 1, 1999.

• "Mission Statement: Federal Accounting Standards Advisory Board"

Federal Accounting Standards Advisory Board

441 G Street, NW, Suite 6814

Mailstop 6K17V

Washington, DC 20548

Telephone (202) 512-7350

Fax (202) 512-7366

www.financenet.gov/fasab.htm
EXECUTIVE SUMMARY i

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions

September 2001

EXECUTIVE SUMMARY

a. Statement of Federal Financial Accounting Standards (SFFAS) 7, 

Accounting for Revenue and Other Financing Sources, became effective in 

fiscal year 1998 and included detailed provisions that apply to entities 

collecting taxes on behalf of the Federal Government. The two entities 

collecting the vast majority of federal taxes are the Internal Revenue Service

(IRS) and the U.S. Customs Service (Customs). 

b. The Board is issuing this standard to rescind paragraph 65.2 of SFFAS 7. 

Absent very detailed explanations, the provisions of paragraph 65.2 could 

result in information being given to readers of the financial statements that 

they might misinterpret. The Board believes that paragraph 65.2 would not 

accomplish what it purports to accomplish, and would impose costs 

unnecessarily on both the preparer and auditor without a significant benefit. 

The Board's reasoning is explained more fully in Appendix A, Basis for 

Conclusions. 

c. This amendment is effective for periods beginning after September 30, 2000.
TABLE OF CONTENTS ii

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions

September 2001

Section Page No.

Executive Summary i

Introduction 1

Accounting Standards 2

Appendix A: Basis for Conclusions 3

Appendix B: SFFAS 7, Paragraph 65.2 10
INTRODUCTION 1

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions

September 2001

INTRODUCTION

PURPOSE

1. This standard rescinds paragraph 65.2 of Statement of Federal Financial 

Accounting Standards (SFFAS) 7 and makes other conforming changes.

BACKGROUND

2. SFFAS 7 became effective in fiscal year 1998 and included, along with other 

provisions, detailed provisions that apply to entities collecting taxes on behalf 

of the Federal Government. Paragraph 65.2 of that standard required 

disclosure of “revenue-related transactions affecting the beginning and end-ofperiod balances of accounts receivables, accounts payable for refunds, and 

the allowance for uncollectible amounts.” 

3. Subsequent to the issuance of the standard questions arose as to the 

usefulness of the information as well as to the practicality of producing it. 

After discussing the issues and options, the Board issued, in November 1998, 

an exposure draft of a standard rescinding paragraph 65.2. Ultimately, the 

Board agreed that more study was needed, and in January 1999 it deferred 

the effective date of paragraph 65.2 until October 1, 2000 (SFFAS 13, Deferral 

of Paragraph 65.2 – Material Revenue-Related Transactions Disclosures).

4. In November 2000, the Board issued a second exposure draft, Elimination of 

Disclosures Related to Tax Revenue Transactions by the Internal Revenue 

Service, Customs, and Others, Amending SFFAS 7. Based on comments 

received and further consideration, the Board is now rescinding paragraph 

65.2.

EFFECTIVE DATE

5. This amendment is effective for periods beginning after September 30, 2000.
ACCOUNTING STANDARD 2

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions

September 2001

ACCOUNTING STANDARD

6. Paragraph 65.2 of SFFAS 7 is repealed and rescinded.

7. Other conforming changes:

a. The last sentence of paragraph 107 of SFFAS 7 is changed to delete 

“65.2 and” from the parenthesis.

b. The last sentence of footnote 41, paragraph 187.1 of SFFAS 7 is 

changed to delete “in its disclosures required by para. 65.2”.
APPENDIX A: BASIS FOR CONCLUSIONS 3

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions 

September 2001

APPENDIX A: BASIS FOR CONCLUSIONS

8. This appendix summarizes some of the considerations deemed significant by 

the Board in reaching the conclusions in this Statement. It includes the 

reasons for accepting certain approaches and rejecting others. Individual 

members gave greater weight to some factors than to others.

9. The Board issued an exposure draft in November 1998 proposing to rescind 

paragraph 65.2. Comments were received during a minimal comment period 

that ended December 12, 1998. In January 1999, the Board deferred the 

effective date of paragraph 65.2, SFFAS 7, until October 1, 2000.1

10. In December 1998, the Board agreed that further study was needed regarding 

the relevance of the information discussed in paragraph 65.2. Additionally, the 

Board was concerned about the relatively short exposure period 

(approximately 30 days) for the ED. The Board decided to defer the effective 

date for implementing paragraph 65.2 and revisit the issue of eliminating the 

requirement at a later date.

11. Following the decision to defer the disclosure requirement, the Board did not 

take up research on the issue immediately. In December 1999, the Board 

reviewed its agenda and weighed whether it should devote scarce resources 

to this issue or simply allow the provisions of paragraph 65.2 to take effect for 

fiscal year 2001 financial statements. To assist in making this decision, the 

Board sent a letter to the Internal Revenue Service (IRS) asking what 

additional information might be available to aid the Board in considering the 

issue.

12. The IRS responded with additional information based on its two additional 

reporting years’ experience with SFFAS 7 requirements. In addition, the IRS 

provided a briefing to the Board regarding its collections process and systems 

modernization. The IRS renewed the request that the Board rescind the 

provisions of paragraph 65.2. Its auditor, the General Accounting Office, 

supported this rescission.

13. In November 2000, the Board issued a second exposure draft, Elimination of 

Disclosures Related to Tax Revenue Transactions by the Internal Revenue 

Service, Customs, and Others, Amending SFFAS 7, that proposed to 

eliminate paragraph 65.2. Because of the interest in the relevance of this 

information, the Board mailed copies to potential users, for example, 

 

1

 SFFAS 13, Deferral of Paragraph 65.2 – Material Revenue-Related Transactions Disclosures, Amending SFFAS 7 Accounting 

for Revenue and Other Financing Transactions, January 1999.
APPENDIX A: BASIS FOR CONCLUSIONS 4

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions 

September 2001

Congresspersons and staff directors of key committees. The Board received 

comment letters on the exposure draft from the following sources:

FEDERAL

(internal)

NONFEDERAL

(external)

Users, academics, others 2

Auditors 2 1

Preparers and financial 

managers

4

Responses to the Exposure Draft

14. The respondents were closely divided with the majority supporting the 

proposed elimination of paragraph 65.2. It is important to note that the Board 

did not rely on the number in favor or opposed to a given position. Information 

about the majority view is provided only as a means of summarizing the 

comments. The Board considered the arguments in each response and 

weighed the merits of the points raised. The Board summarizes the 

respondents’ arguments below.

 Respondents Supporting the ED

15. Several respondents stated that paragraph 65.2 disclosures would not be 

useful, and could be misleading, to general purpose readers. A respondent 

stated that any attempt to reconcile the elements required by paragraph 65.2 

could be misleading due to timing differences between assessments and 

collections and the definitions of revenue receipts and taxes receivable. 

16. Some respondents said that the IRS currently provides sufficient detailed 

information about federal tax revenues, unpaid assessments, and refunds in 

its annual financial report through footnote disclosures, supplementary 

information and in its management’s discussion and analysis (MD&A). Other 

respondents said that the disclosure requirements of paragraph 65.2 far 

exceed what should be required in general purpose financial statements. 

Another respondent concurring with the elimination of paragraph 65.2 stated 

that FASAB clearly documented its case in the ED’s basis for conclusions. 
APPENDIX A: BASIS FOR CONCLUSIONS 5

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions 

September 2001

Respondents Opposing the ED

17. Other respondents had a different view. One respondent stated that the 

disclosure in SFFAS 7 was intended to overcome some of the practical 

limitations of the tax collection system and make the tax revenue recognition 

closer to what would be reported with fuller accrual accounting. He submitted 

that the information required in paragraph 65.2 is relevant and useful in 

assessing the efficiency and effectiveness of the tax system, not merely the 

administrative practices, and can be explained satisfactorily so as not to be 

misleading.

18. Several respondents stated that insufficient evidence has been offered 

regarding the lack of relevance and understandability of the information to 

warrant eliminating the paragraph 65.2 disclosures, and doing so would 

weaken SFFAS 7. These respondents recommended extending the deferral 

period for the standard, further research, and a hearing, as necessary, prior to 

the issuance of a final standard. One respondent stated that the ED did not 

convincingly explain why the information called for in paragraph 65.2 is so 

complex that it could not be clearly explained. The respondent stated that 

SFFAC 1, par. 158, provides that general purpose financial reports should not 

exclude essential information merely because it is difficult to understand or 

because some report users choose not to use it.

The Board’s Discussion

19. In conjunction with re-deliberating the issues presented in the exposure draft 

and carefully considering the respondents’ comments, the Board notes that 

SFFAS 7 represents a major accomplishment in establishing federal 

accounting standards. SFFAS 7 presents standards for classifying, 

recognizing, and measuring resource inflows as well as concepts for financial 

reporting and makes other significant contributions. Many provisions of that 

statement are now fundamental to federal accounting. However, the Board 

believes that paragraph 65.2 of SFFAS 7 is flawed because the information 

required therein might be misinterpreted, would not accomplish what it 

purports to accomplish, and would be difficult to produce.

Information that Could Be Misinterpreted

20. Paragraph 65.2 requires disclosure of information about the beginning and 

ending balances of accounts receivable and related accounts, as well as 

material types of revenue transactions that relate to the collecting entity’s 

custodial responsibilities. The minimum information required would include 
APPENDIX A: BASIS FOR CONCLUSIONS 6

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions 

September 2001

“assessments by the entity,” “penalties,” “interest,” and “abatements.” In the 

two exposure drafts on this issue (November 1998 and November 2000) the 

Board has discussed the complexity of the assessment and abatement 

process. The Board has discussed the various IRS-initiated tax collection 

actions, including compliance assessments; the enforcement work-inprocess status of the assessment database; the possible timing difference 

between the period to which the tax relates, the eventual assessment of the 

tax and penalties and interest, and the final collection or abatement of the 

assessment; and other complicating factors. Many assessments, penalties, 

and interest are made for enforcement purposes, are often overstated due to 

incomplete information, and are subject to change based on receipt of 

additional information from the taxpayer. Thus, they do not always precede a 

receivable2 in an accounting sense. The Board believes that the user could 

misinterpret assessment reporting because increases or decreases in 

assessments do not lead necessarily to increases or decreases in 

receivables or revenue. Further, developing meaningful categories of 

assessments that would permit a user to analyze whether enforcement 

assessments are likely to lead to revenues would not be cost-beneficial when 

one considers the remaining reporting required under SFFAS 7 as amended.

21. The Board also has discussed the complications of the abatement process. 

Abatement is a reduction or cancellation of an assessed tax. Abatements are 

made for myriad reasons and in some cases there is no correlation between 

the original assessment and the final reason for the abatement. For example, 

taxpayers can carry back losses to prior years and reduce prior year taxes 

that were correctly assessed by the IRS. Such reductions are classified as 

abatements but are not the same as abatements where the tax assessment 

itself was in error. 

22. Moreover, taxpayers also file amended returns that can require abatement of 

the original amount they reported, including taxpayer requests to abate 

particular types of penalty assessments due to reasonable causes. For 

example, during 1998 a new law required the IRS to disallow certain 

dependents and credits claimed if the taxpayer did not include a social 

security number for a dependent child or a taxpayer identification number for a 

child-care provider. In each case the IRS posted an assessment, accrued 

penalties and interest pending provision of the information, and subsequently 

abated the assessment when the taxpayer provided the required verification. 

This change in law increased the total assessments, interest, penalties, and 

 

2

Per SFFAS 7, paragraph 53, accounts receivable should be recognized when a collecting entity establishes a specifically 

identifiable, legally enforceable claim to cash or other assets through its established assessment process to the extent the 

amount is measurable.
APPENDIX A: BASIS FOR CONCLUSIONS 7

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions 

September 2001

abatements to enforce a reporting requirement rather than to collect additional 

tax revenue. One could be misled since both assessments and abatements 

were “overstated” in the sense that it was anticipated at the time of 

assessment that, in the majority of cases, the assessment would be abated.

23. There are many different reasons for abatements with varying transactions 

potentially covering 10 years of assessments, each affecting the balances to 

be disclosed under paragraph 65.2. The Board believes that reporting on total 

assessments, including penalties and interest thereon, and abatements could 

be misinterpreted in the context of disclosures purporting to be transactions 

affecting the beginning and ending balances of accounts receivable and 

related accounts. Moreover, the Board believes that attempts to reconcile the 

elements required in paragraph 65.2 could be misinterpreted due to timing 

differences between assessments and collections and the definitions of 

revenue receipts and taxes receivable. 

24. The Board concludes that the paragraph 65.2 information is not relevant for 

reconciling the beginning and ending balances of accounts receivable and 

related accounts, which paragraph 65.2 purports to do. Some of the required 

information is beyond the scope of those accounts since activity does not 

result in or relate to revenue or receivables, precedes the recognition of taxes 

receivable, or relates solely to tax administration or enforcement.

25. When considering whether to retain paragraph 65.2, the Board considered the 

materiality of taxes receivable. The IRS’ taxes receivable are not large in 

relation to annual tax revenue. For FY2000, approximately $20 billion in IRS 

receivables represent three days of collections.

Other Information Required

26. The Board calls attention to other SFFAS 7 paragraphs and to other FASAB 

standards that require disclosures and supplemental information that the 

Board believes accomplish the objectives of SFFAS 7 as stated in paragraph 

187.1 and elsewhere. Paragraph 65.1 requires disclosure of factors affecting 

collectability and timing of categories of accounts receivable and the amounts 

involved. Paragraph 65.3 requires disclosure of cumulative cash collections 

and refunds by tax year and tax type. Paragraph 67 requires supplemental 

information about the estimated realizable value of compliance assessments 

and pre-assessment work-in-process; about other claims for tax refunds that 

are not yet accrued but are likely to be accrued when administrative actions 

are completed; and, about the amount of assessments that the entity still has 

statutory authority to collect but that have been written off and thus excluded 
APPENDIX A: BASIS FOR CONCLUSIONS 8

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions 

September 2001

from accounts receivable. SFFAS 15, Management’s Discussion and 

Analysis, requires discussion, among other things, of performance goals, 

objectives, results, systems, controls, and legal compliance. 

Conclusion

27. The Board actively sought comments from potential users. In addition to the 

FASAB distribution list, the Board sent the ED to all those who had 

commented on the prior ED of November 1998 and to potential decisionmakers, including especially House and Senate committees and subcommittees. Also, in setting February 16, 2001, as the cut-off date for 

comments, the Board provided an extended period for respondents to submit 

comments. Despite the Board’s efforts to reach users the response to the 

ED did not demonstrate a demand from users to have the information. Only 

one respondent said the information was useful and necessary. Other 

respondents who oppose eliminating paragraph 65.2 at this time said that the 

Board did not offer enough evidence regarding relevance and 

understandability to warrant eliminating paragraph 65.2, not that they 

themselves found it useful or relevant and for what purposes. Due to the cost 

of the information, the availability of other information on this topic, the 

requests from the preparer and auditor communities, and lack of a response 

from users of the information, the Board does not believe the paragraph 

should be retained.

28. The Board believes that sufficient evidence has been produced to conclude 

that the information required by paragraph 65.2 could be misinterpreted by 

users of general purpose financial statements and that it does not accomplish 

what it purports to accomplish. The Board does not exclude essential 

information merely because it is difficult to understand or because some 

report users choose not to use it. In this instance, however, the complexity of 

the tax collection process in conjunction with the context of accounts 

receivable reconciliation renders paragraph 65.2 defective and, therefore, not 

relevant. The objective of SFFAS 7 is to tell users what is happening at the tax 

collection entities, and the Board believes the standard is achieving this 

objective without paragraph 65.2, and that paragraph 65.2 could in fact be 

misinterpreted. This amendment of SFFAS 7 is limited to the problem of 

disclosures in paragraph 65.2 being misinterpreted.

Vote for Approval
APPENDIX A: BASIS FOR CONCLUSIONS 9

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions 

September 2001

29. The amendment of SFFAS 7 prescribed in this statement is approved by a 

vote of seven members in favor and one member dissenting (only eight 

members voted due to a vacancy on the Board). The dissent is available for 

review at the FASAB offices.
APPENDIX B: PARAGRAPH 65 OF SFFAS 7 10

Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions 

September 2001

APPENDIX B: Paragraph 65 of SFFAS 7

65. Entities that collect taxes and duties should disclose the following relating to 

future cash flows, revenue-related transactions, and custodial responsibilities: 

65.1 Accounts receivable. Factors affecting collectibility and timing of categories 

of accounts receivable and the amounts involved. 

65.2 Material revenue-related transactions. Revenue-related transactions 

affecting the beginning and end-of-period balances of accounts receivable, 

accounts payable for refunds, and the allowance for uncollectible amounts 

should be disclosed. All material types of revenue transactions which relate 

to the custodial responsibilities of the collecting entities should be disclosed. 

The disclosure should be comprehensive enough to include as a minimum: 

self-assessments by taxpayers (or importers); assessments by the entity; 

penalties; interest; cash collections applied to taxpayer accounts and 

unapplied collections; refunds, refund offsets, and drawbacks; abatements; 

accounts receivable written off during the reporting period as uncollectible; 

and provisions made to the allowance for uncollectible amounts. 

65.3 Cumulative cash collections and refunds by tax year and type of tax. 

Cash collections and refunds by tax year and type of tax should include 

cash collections and cash refunds for the reporting period and for sufficient 

prior periods to illustrate (1) the historical timing of tax collections and 

refunds, and (2) any material trends in collection and refund patterns. 

Sufficient prior periods for each type of tax are the periods which end when 

the statutory period for collection ends. Collecting entities may shorten 

these periods if evidence for prior tax years indicates that a shorter period 

would reflect at least 99 percent of the collectible taxes.
Federal Accounting Standards Advisory Board

Elimination of Certain Disclosures Related to Tax Revenue Transactions

September 2001

FASAB Board Members

David Mosso, Chairman

Barry Anderson

Philip T. Calder

Joseph L. Kull

James M. Patton

Robert N. Reid

Nelson Toye

Kenneth J. Winter

FASAB Staff

Wendy M. Comes, Executive Director

Project Staff:

Richard Fontenrose

____________________________________________________

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