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Tax Abatement Disclosures


Minutes of Teleconference, July 28, 2014

The Board continued deliberations from its July meeting on what level of detail should apply to each tentatively proposed disclosure. The Board tentatively decided to propose that the following tax abatement disclosures—other commitments made by the reporting government, commitments made by recipients, information about provisions for recapturing abated taxes, and general descriptive information—adhere to three general disclosure principles:
  • The reporting government should disclose tax abatement information disaggregated between its own agreements and those of other governments.
  • Governments should be permitted to disclose information individually or in the aggregate.
  • The reporting government should present agreements by major program for its own abatements and in the aggregate for the abatements of other governments.
The Board tentatively decided to propose that the reporting government disclose the types of commitments it has made—other than to reduce taxes—as part of tax abatement agreements and describe the most significant individual commitments.

The Board tentatively decided to propose that governments disclose the types of commitments made by tax abatement recipients, by major program for a government’s own abatements. The Board tentatively decided not to propose this disclosure for the tax abatement agreements of other governments.

The Board next deliberated whether tax abatement disclosures should be recurring or nonrecurring. The Board tentatively decided to propose that the tax abatement disclosures be included as recurring notes to the financial statements as long as the agreements remain in effect, with one exception: The disclosure of other commitments made by a government would cease after the government has fulfilled its commitment.

Minutes of Meetings, July 9-10, 2014

The Board continued deliberations on what information to propose be disclosed about tax abatement agreements.

The Board discussed the following potential disclosures:
  • Other commitments made by governments as part of tax abatement agreements
  • Commitments made by recipients
  • Recipient compliance with their commitments
  • Provisions for recapturing abated taxes
  • General descriptive information.
The Board tentatively decided to propose disclosure of other commitments made by governments, commitments made by recipients, provisions that allow for recapture, and general descriptive information. The general descriptive information tentatively would include:
  • Name and purpose of the program(s), and the taxes being abated
  • The authority under which tax abatements are granted
  • The criteria, if any, that make a recipient eligible to receive a tax abatement
  • The manner in which the taxes are abated, including how the amount of abatement is determined and how the taxes are reduced
  • The number of abatements granted during the reporting period and the total number of abatements in effect as of the date of the financial statements.
The Board tentatively decided not to propose disclosure of recipient compliance with their commitments.

The Board next deliberated the level of detail at which governments should disclose information about their tax abatements. The Board tentatively decided that the reporting government should disclose tax abatement information disaggregated between its own agreements and those of other governments. The Board tentatively decided to propose that governments be given the option to disclose information individually or in the aggregate. Further, the Board tentatively decided that a reporting government should present agreements by major program for its own abatements and in the aggregate for the abatements of other governments.

The Board began discussion on how the number of tax abatement agreements (level of detail) would affect the Board’s tentative decisions to date. In considering this perspective, the Board tentatively decided to propose that the amount of taxes abated in the current year be disclosed by major program for the reporting government’s own tax abatement agreements and in the aggregate for tax abatement agreements of other governments.. The Board also tentatively decided a disclosure of the years remaining on a tax abatement would no longer be proposed due to concerns about the practicality of disclosing the information and its usefulness when aggregated.

The Board will continue its discussion of how the level of detail should apply to each tentatively proposed disclosure at its July teleconference.

Minutes of Meetings, May 28-29, 2014

The Board continued deliberations on the Tax Abatement Disclosures project, concentrating on what information will tentatively be disclosed about tax abatement agreements. These tentative decisions on disclosures were made based solely on their essentiality to financial statement users and consistency with the objectives of financial reporting but without consideration of level of detail or aggregation. General disclosure principles on level of detail and aggregation, and specific provisions for tentatively agreed-upon disclosure proposals, will be discussed at a later meeting.

The Board discussed the following potential disclosures for tax abatements:
  • The name of the recipient
  • The amount of abatements in the current year
  • The amount of abatements remaining in future years
  • The duration of abatements.
The Board tentatively decided not to propose disclosure of the name of the recipient or the amount of abatements remaining in future years. The Board tentatively decided to propose requiring disclosure of the amount of taxes abated in the current year and the duration of abatements. The Board tentatively agreed that duration disclosure would take the form of the remaining years on the agreement(s).

Minutes of Meetings, April 8-10, 2014

The Board began deliberations on the Tax Abatement Disclosures project, focusing on defining the scope of transactions that will be covered by this project and creating a tentative definition of the term tax abatement.

The Board discussed whether to include the following components in the definition of a tax abatement: (a) the mechanism for reducing taxes, (b) the purpose of the tax abatement, (c) the breadth and applicability of abatement programs, (d) the existence of an agreement, and (e) the type of revenue being abated.

The Board tentatively agreed to include the purpose of the tax abatement, the existence of an agreement, and the type of revenue being abated in the tentative definition of a tax abatement. The mechanism for reducing taxes and the breadth and applicability of abatement programs were tentatively excluded from the definition.

Based on these tentative decisions, the Board tentatively agreed to propose the following definition for a tax abatement, for the purposes of this project, subject to further revision after subsequent deliberations:

For financial reporting purposes, a tax abatement is a reduction in taxes that results from an agreement between one or more governmental entities and an individual taxpayer in which (a) one or more governmental entities forgo tax revenues that the taxpayer otherwise would have been obligated to pay and (b) the taxpayer promises to take a specific action that contributes to economic development or otherwise benefits the government(s) or its citizens.

Further, the Board tentatively agreed that the scope of possible standards that it will consider for tax abatement disclosures should be limited to transactions that meet the proposed definition of a tax abatement.

Minutes of Meetings, March 3-5, 2014

The Board received and discussed the results of staff research on the key issues of the Tax Abatement Disclosures project. Preliminary research findings were presented covering the following areas: nature and extent of tax abatements; commitments made in tax abatement agreements; user needs; and the availability of information. No formal deliberations took place at this meeting.