Sponsors (19)
The bill reduces ambiguity and economic mismatches between financial reporting and taxable income for AFS filers, but shifts tax outcomes for some extractive businesses upward and creates new administrative burdens to implement the changes.
Corporations and other taxpayers that prepare applicable financial statements will have clearer, more consistent rules for reconciling AFS (applicable financial statement) income to taxable income, reducing ambiguity in tax reporting.
Aligning AFS adjustments with taxable deductions (e.g., depreciation and section 263(c) costs) reduces timing/method mismatches that can produce unexpected tax outcomes for investors and creditors.
Some businesses — particularly oil, gas, and other extractive firms — may face higher taxable income or lose favorable AFS treatment, increasing their tax liabilities compared with prior practice.
Applying the new reconciliation rules will impose additional administrative and recordkeeping costs on companies and on the Treasury/IRS to implement and enforce the changes beginning for tax years after 2025.
Based on analysis of 2 sections of legislative text.
Changes how AFS income is adjusted for intangible drilling and development costs, narrowing which depreciation and property deductions are reduced or disregarded to amounts allowed in taxable income.
Introduced January 23, 2025 by James Lankford · Last progress January 23, 2025
Changes the tax rules for calculating "adjusted financial statement" (AFS) income when companies claim intangible drilling and development costs (IDCs). It narrows which depreciation, depletion, and certain property deductions are reduced or ignored in the AFS-to-tax reconciliation so that only amounts actually allowed in taxable income are treated the same way in AFS income. The rule takes effect for taxable years beginning after December 31, 2025.