Alert

The US House passed the One Big Beautiful Bill Act (OBBBA), featuring significant tax changes and spending cuts, on May 22, 2025. The Senate reviewed, revised, and passed its version of the OBBBA on July 1st, sending the OBBBA back to the House for a final vote. On July 3, the House passed the Senate’s version of the OBBA and President Trump signed it into law on July 4.

Both the House and Senate had to pass an identical bill before submission to the President for enactment. Many businesses are preparing for its impact; especially on ASC 740 reporting for Q2 financials.

New tax laws often bring numerous changes and opportunities. With the OBBA’s enactment, timely and accurate ASC 740 reporting will become even more important. Flexibility and careful planning are essential.

Prepare your business for the OBBA’s tax law changes with insights into key ASC 740 considerations across three bill enactment scenarios:

• On or before the end of a quarter and before filing of Form 10-Q.
• After the end of the quarter but before the filing of Form 10-Q, the fact pattern with the enactment of the OBBBA on July 4.
• Not enacted before the end of a quarter, nor before filing of Form 10-Q.

Key Tax Bill Provisions for Corporations

The enactment of the OBBBA includes business changes to:

• Business interest expense limits
• Bonus depreciation
• Section 174 R&D capitalization
• Reductions in clean energy credits
• Updates to employee retention credits and opportunity zones credits
• New entity aggregation rules under section 162(m) for deductible executive compensation
• Limits on C corporation charitable deductions

It also modifies international tax items like:

• Global Intangible Low-Taxed Income (GILTI)
• Foreign Derived Intangible Income (FDII)
• Base Erosion and Anti-Abuse Tax (BEAT)
• House proposed section 899 retaliatory taxes

On June 28, the Senate released the text of its 940-page revised bill on the eve of the Senate’s vote-a-rama lasting two days, during which amendments were made. The OBBBA passed the Senate on July 1 sending the bill back to the House for a vote on the Senate’s version. On July 3 the House passed the Senate’s version of the OBBA and President Trump signed the OBBA into law on July 4.

The Senate version became law with the enactment of the OBBA which largely followed the House version of the OBBBA making certain provisions permanent, tweaking others, including extending the phase-out period of certain clean energy credits and removing House proposed new section 899 retaliatory taxes, commonly referred to as the revenge tax.

ASC 740 Reporting Considerations

U.S. taxable entities, generally corporations, should recognize the tax effects of law changes on deferred tax accounts and taxes payable or refundable for prior years in the period that includes the enactment date (ASC 740-10). In the US, the enactment date of new or amended US Federal statutes occurs when the President signs legislation into law after passage by both the House and Senate.

For interim reporting, the Financial Accounting Standards Board (FASB) in Accounting Standards Codification (ASC) Topic 740, Income Taxes, requires reflection of these effects in the Annual Effective Tax Rate (AETR) calculation in the first current interim period that includes the enactment date (ASC 740-270-25-5).

If a law change is enacted before the end of a reporting period, these changes should be incorporated into that period’s calculations. Interim balance sheets reflecting material deferred tax assets and liabilities should be updated for new tax law changes (ASC 740-10-50-9).

If a deferred item becomes material due to the change, it must be addressed. For example, many companies may need to remove deferred taxes related to current year Section 174 cost capitalization as the enacted Senate version of the OBBBA allows taxpayers to immediately deduct domestic research or experimentation expenditures paid or incurred in taxable years beginning after December 31, 2024. Since the OBBBA was enacted July 4, for a calendar year filer, current and deferred tax changes will be reflected as discrete items in Q3’s interim financial statements for the three and nine months ended September 30.

Unlike prior reforms, the OBBBA didn’t change statutory tax rates in a way that requires revaluation of deferred taxes affecting the AETR. Generally, tax rate changes trigger a discrete tax impact on deferred assets and liabilities. However, when no tax rate changes occur, as with the OBBBA, no discrete revaluation is recognized.

Companies should analyze whether a change in the tax law creates other discrete changes, such as adjustments to uncertain tax positions (UTPs), changes in the calculation of valuation allowances, and true ups to items such as Section 162(m) rules for stock compensation DTAs that may be affected by new aggregation rules included in the OBBBA.

Companies should still reassess material deferred balances, as these changes can significantly affect deferred and payable amounts. Certain tax law changes may be determined to be discrete to the quarter in which the date of enactment occurs. In such case the discrete tax-effects are fully recorded in quarter of enactment rather than adjusting to the AETR.

Understanding these scenarios can help implement accurate and compliant ASC 740 reporting as the legislation evolves.

Other Considerations

Corporations should consider adjusting for material deferred tax items that may be impacted by the OBBBA and serve as inputs in permanent calculations, such as:

• Changes in energy tax credits earned
• Effects of new entity aggregation rules for purposes of section 162(m) public entity deductible executive compensation
• deductions, and tax rates applicable to FDII, GILTI, BEAT and foreign tax credit (FTC) limitations

Certain tax law changes may be determined to be discrete to the quarter in which the date of enactment occurs. In such case the discrete tax-effects are fully recorded in quarter of enactment rather than adjusting to the AETR.

When evaluating the need for a valuation allowance, consider provisions in the OBBA that affect realizability.

For example, an entity may have established a valuation allowance on a deferred tax asset (DTA) because it wasn’t likely to be realizable before the law change. If the new tax law provides a means to realize the DTA, reducing the valuation allowance will impact the income tax provision in the period the law is enacted.

Further, the enacted Senate version of the OBBBA permanently reinstates the addbacks for depreciation and amortization deduction in computing Adjusted Taxable Income (ATI) 30% limitation for deductible income expense. A higher ATI may allow a greater amount of currently deductible interest expense, potentially reducing an increasing DTA for excess interest expense. It may also allow for some current deductibility of excess interest expense carryover, thus reducing a DTA or providing an opportunity to reduce a valuation allowance.

Reassess uncertain tax positions if changes in facts or circumstances relating to new tax laws warrant a review of management’s conclusions.

Financial Statement Disclosures

When a new tax law is enacted, it’s critical to financial statement disclosures. There are three key scenarios to be aware of:

On or Before the End of a Quarter and Before Filing Form 10-Q

When a tax law change occurs during the period covered by the financial statements, guidance (ASC 740-10-50-22) requires an entity to disclose the tax consequences of adjustments to deferred tax liabilities (DTLs) or deferred tax assets (DTAs) resulting from enacted changes in tax laws or rates.

With the enactment of the OBBA on July 4, for a calendar year filer, appropriate disclosures on the tax effect of the enactment of the OBBA in the MD&A and tax footnotes and recording current and deferred tax effects reflected as discrete items on the income statement and balance sheet in the Q3 Form 10Q interim financial statements for the periods presented ended September 30.

After the End of the Quarter but Before Filing Form 10-Q

If a tax law change occurs after the reporting period but before filing (ASC-740-270-25-2), disclosure is required if it’s probable that the change will affect the entity in future periods. For example, a reporting entity is required to consider disclosure of the effects of a tax law change occurring after the reporting period, but before the filing of the Form 10-Q. In considering the realizability of DTAs and thus disclosing the effects of any expected adjustment in the valuation allowance to be recorded in the period of enactment.

With the enactment of the OBBA on July 4, for a calendar year filer, a reporting entity will include appropriate disclosures on expected tax effects on the enactment of the OBBBA in the MD&A and tax footnotes in the Q2 Form 10Q interim financial statements for the periods presented ended June 30.

A Pending Tax Law Change isn’t Enacted Before the End of a Quarter, Nor Before Filing Form 10-Q

When a tax law change is expected but not enacted before the financial statements are issued, and is likely to pass soon, it’s typically disclosed in the MD&A section as a pending change that may impact tax expenses, deferred taxes, and other related items.

In general, before tax law changes are enacted, SEC registrants should evaluate whether potential changes could materially affect:

• Operations
• Financial position
• Liquidity
• Capital resources

If so, consider disclosing the scope and nature of these potential impacts.

After enactment, material anticipated effects should be disclosed accordingly. See SEC Staff Accounting Bulletin No. 118 that expresses the views of the SEC staff regarding the application of the FASB ASC Topic 749, Income Taxes, in the reporting period that includes December 22, 2017, the date on which the Tax Cuts and Jobs Act (TCJA) was signed into law. SAB 118 provides helpful guidance instructive to considering disclosures for the Bill when enacted.

Case Study

To better understand how these three scenarios work in real life, consider the following case studies.

OBBA Enacted During the Third Quarter

Widget Company has significant income and a large FDII deduction. It adjusts its interim balance sheet for Section 174 but hasn’t historically included fixed asset deferred tax changes in its Q3 interim financials. With the enactment of OBBA during the Q3 reporting period, these fixed asset deferred tax changes may be determined to be material.

The company needs to take the following actions for Q3:

• Adjust AETR to reflect changes in FDII and other permanent items.
• Update the interim balance sheet for Section 174 current and deferred tax changes.
• Evaluate whether deferred tax related to fixed assets requires adjustment on the interim balance sheet.
• Confirm the new FDII calculation incorporates changes to any material temporary differences reflected in the balance sheet.
• Review the impact of the tax law on valuation allowances and uncertain tax positions (UTPs).
• Disclose the tax effects of the law change in its financial statements.

OBBA Enacted Subsequent to Second Quarter End But before Issuing 10-Q

Using the above facts, the OBBA is enacted on July 4 after the June 30 Q2 reporting period but before the financial statements are issued.

The company:

• Shouldn’t record tax law changes in the Q2 tax calculations.
• Should disclose the OBBA tax law change in the Q2 financial statements and its potential impact.

A Pending Tax Law at Close of a Quarter is Enacted After 10-Q Issued

A scenario where a pending tax law change isn’t enacted before the close of a quarter nor before the date that quarter’s financial statements are issued.

The company:

• Shouldn’t record tax law changes in the quarter’s tax calculations.
• Could acknowledge the status of the proposed legislation and disclose in the MD&A that future passage of the legislation could affect their future effective tax rates.

Comparisons to Prior Tax Law Changes

Below are three examples of these tax enactment scenarios in action.

Starbucks Corporation—10-Q Q1 December 2017

A fiscal year company with tax law enacted during the quarter: Starbucks highlighted the significant effects on AETR, deferreds, and effects nontax items, such as effect on company cash flow in their Q2 10-Q.

The 10-Q covered the period when the TCJA was enacted. This serves as a strong example of a 10-Q addressing substantial tax law change.

PespiCo—10-Q Q1 March 2020

A company that contended with the CARES Act passing after the 10-Q reporting period but before its issuance: PepsiCo highlighted the expected business impacts but made no changes in the quarter. A clear example of tax law enacted between the reporting period and financial statement issuance.

Apple—10-Q Q3 July 2017

In July 2017, tax law changes were being discussed in Congress but weren’t  enacted. During this time, Apple highlighted the possibility of changes—a good example of uncertainty around tax law impact.

The company noted it is subject to taxes in the U.S. and multiple foreign jurisdictions, where economic and political conditions could lead to significant tax rate changes. These changes, along with shifts in deferred tax asset valuations or tax law interpretations, could affect the company’s effective tax rate.

We’re Here to Help

To learn more about how the OBBBA’s enactment can impact your business and what you can do to prepare for its changes, contact your firm professional.

Additional Resources

• ASC 740 Services
• Tax Planning Services