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Strategic Tax Teams Prepare for the Impact of the New Lease Standards

ATLANTA - (April 4, 2018) - While accounting departments are focusing on complying with the new lease standards (ASC 842/IFRS 16), tax departments also need to focus on the impacts of moving leases with terms greater than 12 months onto the balance sheet.

With a look back period beginning in 2017, it is anticipated that trillions of dollars of lease obligations are set to hit corporate balance sheets in 2019. While there are no changes in the way leases are treated for income tax purposes, deferred taxes will need to be recorded for all of these new assets that have no tax basis. Additionally, as leases are added to the balance sheet, thorough evaluation of each lease may lead to a change in classifying what was previously considered an operating lease to a capital lease for tax purposes.  This may require a change in method of accounting, which would have an additional impact on corporate income taxes.

Even property tax may be impacted by the newest standards. While the payment of property tax is typically included as part of the lessor/lessee agreement, having a system in place to record these details will be critical for compliance and to ensure companies are not double paying. For example, paying property taxes pursuant to the lease agreement and again when the leased property is added to the balance sheet.

With proper planning and the right tools, companies can use this change as a catalyst for improvement. PowerPlan’s Income Tax Suite includes features that allow forecasting of all tax depreciation, gain/loss and deferred taxes. For more information on how PowerPlan can support lease and tax compliance, planning and forecasting, visit our website at www.powerplan.com.