The Internal Revenue Service is urging as many qualifying homeowners as possible to contact their mortgage lenders and see if they can modify their mortgage payments to be eligible for a taxable-income exclusion set to expire at the end of the year.
The IRS said will accept debt reduction modifications as long as the borrower receives a trial offer by the sunset of the Home Affordable Modification Program, set for Dec. 30, 2016, according to Notice 2016-72. The program was created to encourage banks to lower monthly mortgage payments to help homeowners stave off foreclosure after the subprime mortgage crisis. Congress extended the relief under §108(a)(1)(E) of the Internal Revenue Code to arrangements entered into and evidenced in writing before January 1, 2017, in the Protecting Americans from Tax Hikes Act of 2015, Pub. L. No. 114-113, 129 Stat 2242, 3065-66 (2015) (PATH Act).
Homeowners must receive a qualifying trial period plan from their bank before Jan. 1, 2017, but do not need to complete the plan or enter into a permanent version before the deadline, the IRS said.
Notice 2016-72 is scheduled to be published in Internal Revenue Bulletin 2016-50, dated December 12 and is also available here.
Final Rules Coming for Revised Goodwill Impairment Test:
The Financial Accounting Standards Board voted 4-3 to move ahead with issuing final rules to simplify and reduce costs in applying the goodwill impairment test companies must perform.
A company records goodwill when it buys another company and the price of the acquired firm exceeds the fair value of the firm's identifiable assets acquired—tangible and intangible—and liabilities assumed.
Goodwill is recorded on the balance sheet as a noncurrent asset. Current rules require companies to perform a goodwill impairment test at least once a year. Many have said the current two-step test is costly and complex.
The forthcoming standard would eliminate the second step of the two-step goodwill impairment test, an accounting procedure that is required for certain noncurrent assets recorded on the balance sheet. Noncurrent assets are ones unlikely to turn into cash for unrestricted use within one year of the balance sheet date.
Under the forthcoming standard, companies would follow a one-step test. A goodwill impairment test would compare the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds the reporting unit's fair value, an impairment charge would be recognized for the difference. However, that amount shouldn't exceed the carrying amount of goodwill allocated to that reporting unit.
Additionally, if goodwill is tax deductible, a company must gross up the impairment charge for the effect of the deferred tax benefit on the carrying amount of the reporting unit. The one-step impairment test should also be applied for reporting units with zero or negative carrying amounts. Companies would have to disclose the reporting units with zero or negative carrying amounts that have goodwill allocated to them, and the amounts of allocated goodwill.
The forthcoming standard will have a broad impact because reporting of goodwill impairment has been trending up for U.S. publicly traded companies. Companies recorded $57 billion in goodwill impairment in 2015, more than double the impairment recorded during the prior year, according to Duff & Phelps' Annual Goodwill Impairment Study. The energy industry was the hardest hit, followed by information technology and consumer discretionary and industrials, the report states.
At its meeting on November 30 the FASB also clarified that for private companies, the rules are effective after December 15, 2021, but early adoption is allowed.
The board also clarified:
- If an organization is switching from the private company alternative for goodwill—which is allowed if they have not also adopted the private company alternative for intangible assets—they can do so without having to justify the preference;
- The new guidance would be applied prospectively;
- In order to obtain the transition relief in the standard, companies must also adopt it on or before the effective date;
- The private-company alternative will include a reference to the new guidance on the effect of tax deductible goodwill on the impairment charge calculation.