Accounting for Income Taxes - KPMG

Accounting for Income Taxes ? Tax Reform and Other Current Developments

2019 U.S. Cross-Border Tax Conference May 14 ? 16, 2019

tax.kpmg.us

Notices

The following information is not intended to be "written advice concerning one or more Federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. NDPPS 821761

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Agenda

01 Continuing accounting for income

taxes considerations of tax reform

02 Proposed ASU: Disclosure framework ? Changes

to the disclosure requirements for income taxes

03 Forthcoming proposed ASU on simplifications

to accounting for income taxes

04 SEC comments on cross-border income

taxes matters

Today's Presenters

Name Tony Camara Ashby Corum Jenna Summer

Title Senior Director, Tax Accounting Partner Tax Managing Director

Firm/Company Name Red Hat, Inc. KPMG LLP KPMG LLP

Email tcamara@ acorum@ jsummer@

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. NDPPS 821761

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Continuing accounting for income taxes considerations of tax reform

Excessive executive compensation

? Changes covered employees to principal executive officer, principal financial officer and three other highest compensated officers

? Removes exceptions for commissions and performance based compensation ? Employees that are covered persons remain covered persons for all future years

-- Current tax impact - Increase in nondeductible compensation may increase taxable income and the effective tax rate

-- Deferred tax impact - ?162(m) limitations should be considered in measuring deferred tax assets on share-based compensation -- Two most common methods used in practice to determine which compensation amounts are deductible are pro rata or stock compensation last

- Consider impact to other compensation related deferred taxes

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. NDPPS 821761

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Net operating losses

? Limits utilization to 80 percent of taxable income for losses arising in tax years beginning after December 31, 2017

? Repeals ability to carryback net operating losses, except for certain farming losses, for losses in years ending after December 31, 2017

? Permits indefinite carryforward of losses in years ending after December 31, 2017 ? Special rules for property and casualty insurance companies

-- Net operating loss carryforwards arising in tax years ending after December 31, 2017 may be supported with reversing taxable temporary differences differently than older losses

-- Valuation allowance judgment

- Scheduling may be required for net operating loss limitation in determining the

amount of deferred tax assets supported by reversing deferred tax liabilities

- Support of indefinite life deferred tax assets with indefinite life deferred

tax liabilities

- We believe tax-planning strategies are required to be considered for

carryforwards with an indefinite life

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? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International

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Cooperative ("KPMG International"), a Swiss entity. All rights reserved. NDPPS 821761

Interest expense limitation

? Disallows interest expense in excess of 30 percent of adjusted taxable income (generally without regard to activity not associated with a trade or business, interest income or expense, and net operating losses, amongst other adjustments)

? For taxable years beginning after December 31, 2017 and before January 1, 2022, adjusted taxable income also excludes deductions for depreciation, amortization, or depletion

? Disallowed interest may be carried forward indefinitely

-- Current tax impact - May result in an increase in taxable income and the effective tax rate

-- Valuation allowance judgment - Consider amount and character limitations for utilization of disallowed interest carryforward, including ordering rules - Support of indefinite life deferred tax assets with indefinite life deferred tax liabilities

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. NDPPS 821761

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