Applicable Financial Statement Conformity Rule Doesn't Apply to Market Discount

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Applicable Financial Statement Conformity Rule Doesn’t Apply to Market Discount

Posted by Kim Chen on December 22nd, 2018

Thanks to the Tax Cuts and Jobs Act (TCJA), accrual method taxpayers are subject to the Applicable Financial Statement (AFS) conformity rule for tax years beginning after 2017. This rule states that the all events test for recognizing income is met no later than when the income is recognized on the taxpayer’s AFS or other financial statement designated by the IRS [ IRC Sec. 451(b) ]. In a recent Notice, the IRS announced that it plans to issue proposed regulations providing that accrued market discount under IRC Sec. 1276 isn’t includible in income under the AFS conformity rule. According to the IRS, this guidance will be applicable as of 1/1/18. Notice 2018-80.