Does your company defer revenue for tax purposes related to original issue discount (OID)?

The Tax Cuts and Jobs Act (P.L 115-97, or the Act), introduces a significant change with regard to the timing of income recognition for certain revenues, including OID. The Act requires accrual method taxpayers to recognize income for federal tax purposes no later than the year in which the amount is recognized as revenue in the taxpayer’s applicable financial statements.

Accordingly, for tax purposes, revenue may no longer be deferred to a period after the corresponding revenue is recognized, for financial reporting purposes. These rules override the rules for OID income recognition.

Since the treatment of OID income varies between book and tax, this item could have a notable impact to taxpayers.

Please take time to become familiar with the new guidance. Contact your tax advisor or a member of the DHG Financial Services practice for more information.