Anonymous CFO
Asked on April 19, 2016
My company is turning profitable this year. i hired a consultant to review prior hires for potential work opportunity credits. He generate $100,000 in findings, which can be applied to future federal income
I would like to book the $18,000 as deferred charges until i am able to utilize the tax benefits. Can I do this and what GAAP/FASB can I reference for the external auditors. It is important as my bank covenants are linked to Net Income after tax, i would prefer not to get hit with an expense this year and get the benefit in the future.
Based on current projections, should utilize the NOL in 3 years and be able to apply the credit, unless I get hit with AMT before that.
Barrett Peterson Senior Manager, Actg Stnds & Analysis • January 15, 2013
No. Consulting service fees are a cost when services are rendered. Software development can offer some exceptions. Unused NOLs, a tax asset, may require a valuation allowance if recorded as assets.
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Eddie Price CFO • January 19, 2013
thanks, 50% of the fee is paid at time of service and 50% is due when credit is used. Since the 50% is contingent on our ability to use the credit, and no cash has been paid, can i defer that portion of the service?
Katherine Simmonds Agent • January 16, 2013
The fees you paid the consultant to determine the amount of the credit are operating expenses and should be recorded as expense, just like any other
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Eddie Price CFO • January 19, 2013
Valerie - thanks, 50% of the fee is paid at time of service and 50% is due when credit is used. Since the 50% is contingent on our ability to use the credit, and no cash has been paid, can i defer that portion of the service?
Dabney Wellford CFO • January 20, 2013
Be careful - there may be sales tax implications based on how you treat this. Consult your sales tax law.
We ended up suing Tennessee over this.
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Eddie Price CFO • January 20, 2013
Dabney
could you give me a few more details, we have retail
Eddie Price CFO • January 23, 2013
Dabney, sorry to be a bother, but can you share with me your experience with TN on this issue, we have retail operations in the state. thanks
Ara Toroyan Director-Fin. Planning & Procurement • January 21, 2013
50% is expensed at the time the services were rendered and the credits identified. The other 50% is expensed when the credits are used per your agreement with the consultant. There is no need to accrue a liability for the "second" 50% until you actually use the credits and the fees are payable--per your contract. You might disclose the "contingent liability" in the notes to the financial statements if material.
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Eddie Price CFO • January 23, 2013
thanks for the response, if my contract reads that the fee is contingent upon being able to use the credit (i.e., i can claw the 50% back if it appears that we will not be able to use the credit) is the 50% i paid still recorded as an expense in the current year?
Jeff Fisher Audit Manager • January 21, 2013
Unfortunately there is no future benefit from the services already provided unlike capitalized advertising or financing costs. There is future benefit from the tax savings so you will have an asset or reduced liability. ASC 340 relates to deferred charges and ASC 740 relates to tax provisions.
Bob Farkas Consulting CFO • April 13, 2016
If 50% of the fee is really deferred in terms of payment, you can just record the expense when you actually pay it.
If it is instead subject to "clawback", that implies that you will pay it up front ,but be entitled to claim a refund (if the people are still around in several years). I would not be comfortable deferring it if that was the deal, because of inherent uncertainty of the realisability of the "asset".
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