Board of Governors of the Federal Reserve System 

Federal Deposit Insurance Corporation 

Office of the Comptroller of the Currency

Interagency Statement on Accounting and Reporting Implications of

the New Tax Law

January 18, 2018

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Purpose

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance 

Corporation, and the Office of the Comptroller of the Currency (hereafter, the agencies) are 

providing supervised institutions with guidance on the accounting implications of the new tax

law, which was enacted on December 22, 2017 (the Act), [Fotne1

- An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal

year 2018, P.L. 115-97 (originally introduced as the Tax Cuts and Jobs Act). EndofFte 1.]

and certain related matters.

The accounting guidance in this interagency statement is based on the application of Financial 

Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, 

“Income Taxes,” and does not represent new rules or regulations of the agencies. Changes as a 

result of the Act are immediately relevant to December 31, 2017, financial statements and 

regulatory reports, such as the Consolidated Reports of Condition and Income (Call Report) and 

the Consolidated Financial Statements for Holding Companies (FR Y-9C Report). [Fotne2

- Holding companies should also report the effects of the Act in other relevant December 31, 2017, regulatory

reports filed with the Board of Governors of the Federal Reserve System. EndofFte 2.]

Overview

ASC 740 requires that the effect of changes in tax laws or rates be recognized in the period in

which the legislation is enacted. [Fotne3

- See ASC 740-10-35-4. EndofFte 3.]

As the Act was enacted prior to December 31, 2017,

institutions would record the effects of the Act in their December 31, 2017, regulatory reports. 

Changes in deferred tax assets (DTAs) and deferred tax liabilities (DTLs) resulting from the 

Act’s lower corporate income tax rate and other applicable provisions of the Act would be 

reflected in the institution’s income tax expense in the period of enactment. [Fotne4

- See ASC 740-10-45-15. EndofFte 4.]

Impact on Deferred Tax Assets and Liabilities

ASC 740 requires DTAs and DTLs to be measured at the enacted tax rates expected to apply

when these assets and liabilities are expected to be realized or settled. [Fotne5

- See ASC 740-10-55-23. EndofFte 5.]

As a result of the change
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in the federal tax rate effective for tax years beginning on or after January 1, 2018, institutions 

would remeasure their DTAs and DTLs for purposes of reporting as of December 31, 2017. 

When remeasuring these accounts, institutions would apply the newly enacted federal tax rate to 

those temporary differences expected to reverse in tax years beginning on or after January 1, 

2018. A reduction in the federal tax rate alone would result in decreased DTAs (and a 

corresponding increase in income tax expense) and decreased DTLs (and a corresponding 

decrease in income tax expense). The effects of these changes are to be reported in Schedule RI, 

Income Statement, item 9, “Applicable income taxes (on item 8),” in Call Reports and in 

Schedule HI, Consolidated Income Statement, item 9, “Applicable income taxes (foreign and 

domestic),” in FR Y-9C Reports filed as of December 31, 2017. Under ASC 740, institutions 

that do not use a calendar year tax year may need to schedule reversals of temporary differences 

at the various applicable enacted federal income tax rates to remeasure their DTAs and DTLs. [Fotne6

- See ASC 740-10-55-15(c). EndofFte 6.]

Valuation Allowance

Pursuant to ASC 740, a valuation allowance is recorded against any DTA for which it is more

likely than not that the benefit of the DTA will not be realized. [Fotne7

- See ASC 740-10-30-5(e) and 740-10-30-16 through 740-10-30-25. EndofFte 7.]

In conjunction with the

remeasurement of an institution’s DTAs, management should exercise judgment when assessing 

the need for a valuation allowance. Any adjustment to an existing DTA, through the creation of 

a new, or an adjustment to an existing, valuation allowance, is to be included in Schedule RI, 

Income Statement, item 9, “Applicable income taxes (on item 8),” in the Call Report and in 

Schedule HI, Consolidated Income Statement, item 9, “Applicable income taxes (foreign and 

domestic),” in the FR Y-9C Report in the period the valuation allowance is established or 

adjusted. Additional guidance is provided in the Glossary entry for “Income Taxes” in the 

regulatory report instruction books.

Effect on Amounts Recognized in Accumulated Other Comprehensive Income

In accordance with ASC 740, the impact of the remeasurement of the deferred tax effects of 

items reported in accumulated other comprehensive income (AOCI) is recorded through income 

tax expense, not through other comprehensive income (OCI) (and, hence, AOCI). This creates a 

disproportionate tax effect in AOCI as the recorded DTA or DTL related to an item reported in 

AOCI no longer equals the tax effect included in AOCI for that item.

For example, assume an institution purchased a debt security in July 2017 for $1,000,000 and 

designated the security as available for sale (AFS). As of September 30, 2017, the AFS debt 

security had a fair value of $990,000. To record the decline in fair value as of September 30, 

2017, the institution decreased the carrying value of the debt security on the balance sheet by 

$10,000 and, assuming a 35 percent tax rate, recognized a DTA of $3,500 and a net decrease of 

$6,500 ($10,000 decline in fair value, net of tax effect of $3,500) that flowed through OCI to 

AOCI.

As a result of the Act, the institution’s tax rate changes from 35 percent to 21 percent effective 

for tax years beginning on or after January 1, 2018. The fair value of the AFS debt security
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remains $990,000 as of December 31, 2017. Therefore, the institution would adjust the DTA 

associated with the unrealized loss on its AFS debt security by reducing the DTA from $3,500 to 

$2,100. While the entry to offset the establishment of the DTA as of September 30, 2017, was 

recorded through OCI to AOCI, ASC 740 requires all effects of changes in tax laws and rates to

be recorded through current period income tax expense. [Fotne8

- See ASC 740-10-45-15. EndofFte 8.]

Thus, the $1,400 difference between

the $3,500 reported as a DTA before it is remeasured, and the $2,100 reported as a DTA after it 

has been remeasured in accordance with ASC 740 as a result of the Act’s change in the tax rate, 

is reported as income tax expense for the period ending December 31, 2017.

After recording the effect of the change in the tax rate, the amount associated with the unrealized 

loss on the AFS debt security that is reflected in AOCI as of December 31, 2017, is unchanged at 

$6,500. This results in a disparity between the tax effect of the unrealized loss on the AFS debt 

security included in AOCI ($3,500) and the amount recorded as a DTA for the tax effect of this 

unrealized loss ($2,100). While ASC 740 does not specify how this disproportionate tax effect 

should be resolved, the FASB approved during its January 10, 2018, meeting issuing an 

Exposure Draft of a proposed Accounting Standards Update (ASU) that will allow 

reclassification of the disproportionate tax effect ($1,400 in this example) from AOCI to retained 

earnings in financial statements that have not yet been issued. The FASB expects the ASU to be 

finalized in February 2018. Therefore, to maintain consistency between amounts reported in 

their financial statements and regulatory reports, institutions may incorporate the guidance 

proposed in the ASU for the various items reported net of deferred tax effect in AOCI when 

preparing their December 31, 2017, regulatory reports.

Regulatory Capital Effects

Under the agencies’ regulatory capital rules, DTAs arising from temporary differences that could 

be realized through net operating loss (NOL) carrybacks as of the regulatory capital calculation

date are not subject to deduction from regulatory capital. [Fotne9

- 12 CFR 217.22(d)(1)(i) (Board of Governors of the Federal Reserve System); 12 CFR 324.22(d)(1)(i) (Federal 

Deposit Insurance Corporation); 12 CFR 3.22(d)(1)(i) (Office of the Comptroller of the Currency). EndofFte 9.]

In contrast, temporary difference

DTAs that could not be realized through NOL carrybacks, i.e., those for which realization 

depends on future taxable income as of the regulatory capital calculation date, are deducted from 

common equity tier 1 (CET1) capital if they exceed certain CET1 capital deduction thresholds.

Consistent with the regulatory capital rules, for tax years beginning on or before December 31, 

2017, an institution may consider its hypothetical NOL carryback potential when determining the 

amount of temporary difference DTAs, if any, subject to the deduction thresholds for purposes of 

calculating and reporting its regulatory capital. Thus, an institution’s NOL carryback potential
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may be taken into account for regulatory capital purposes in its December 31, 2017, regulatory 

reports. [Fotne10

- An institution with a tax year other than the calendar year may consider its hypothetical NOL carryback potential

when calculating and reporting its regulatory capital for regulatory report dates through the end of its last tax year

beginning on or before December 31, 2017. For example, an institution with a tax year beginning on July 1, 2017,

may consider its NOL carryback potential when calculating and reporting its regulatory capital for regulatory report

dates through June 30, 2018. EndofFte 10.]

However, for tax years beginning on or after January 1, 2018, the Act generally removes the 

ability to use NOL carrybacks to recover taxes paid in prior tax years. As a result of this change 

in tax law and its interaction with the agencies’ regulatory capital treatment of temporary 

difference DTAs, when an institution calculates its regulatory capital in tax years beginning on 

or after January 1, 2018, the realization of all temporary difference DTAs will be dependent on 

future taxable income. Therefore, all temporary difference DTAs will be subject to the 

deduction thresholds for regulatory capital purposes in such tax years.

Preparation of Regulatory Reports

Institutions are expected to use all available information to make a good faith effort to 

reasonably estimate the effects of the Act when preparing their December 31, 2017, regulatory 

reports. This is consistent with the Securities and Exchange Commission’s (SEC) Staff

Accounting Bulletin No. 118 (SAB 118), which was issued on December 22, 2017, and with the 

FASB Staff Q&A on Whether Private Companies and Not-for-Profit Entities Can Apply SAB

118 (FASB Staff Q&A), which was issued on January 11, 2018. The agencies encourage all 

institutions to review SAB 118 and the FASB Staff Q&A. Institutions may use the measurement 

period approach described in those documents when preparing regulatory reports as of and for 

the period ending December 31, 2017, and in subsequent periods. Thus, institutions will be 

allowed to refine their reasonable estimates as additional information is obtained and will not be 

required to amend previously filed regulatory reports as these estimates are adjusted. An 

institution’s reasonable estimates may include some amounts that are provisional for up to one 

year following the enactment date of the Act while the institution gathers necessary information 

to prepare, analyze, and calculate the effects of the law. Depository institutions and holding 

companies may disclose significant provisional amounts, information limitations, and 

measurement period adjustments as of December 31, 2017, and in subsequent periods in 

Schedule RI-E, Explanations, item 7, “Other explanations,” or in the Optional Narrative 

Statement in the Call Report and in the Notes to the Income Statement-Other or in the Notes to 

the Balance Sheet-Other in the FR Y-9C Report, respectively. SAB 118 includes suggestions for 

appropriate disclosures in these regulatory report schedules when using a measurement period 

approach to accounting for the changes in tax law.

Supervisory Considerations

The agencies understand the Act may result in a decrease in capital and after-tax earnings for 

institutions in a net DTA position as of and for the period ending December 31, 2017. The 

agencies view the effect of remeasuring DTAs and DTLs due to the Act as a nonrecurring event 

that generally will not have a substantial adverse impact on most institutions’ core earnings or 

capital over the long term. Nevertheless, if an institution expects the effects of the Act to lower
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its prompt corrective action category as of December 31, 2017, or a subsequent quarter-end date, 

the institution should contact its primary federal regulator.