*Jurisdiction below the threshold for the period presented
SAB 74 disclosures for future adoption
If companies have not yet adopted ASU 2023-09, they will need to include Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 74 disclosure explaining the anticipated effects of adoption, as illustrated in Apple Inc.’s recent 10-K (fiscal year ended Sept. 27, 2025):
“In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. The Company will adopt ASU 2023-09 in its fourth quarter of 2026 using a prospective transition method.”
Note: Apple’s year-end is on the last Saturday in September. As such, they will adopt in their fourth quarter of 2026.
OBBBA: Tax reform with immediate and future impacts
The OBBBA introduced significant tax changes and permanent extensions of key Tax Cuts and Jobs Act (TCJA) provisions including:
- 100% bonus depreciation
- Immediate deduction of domestic research expenses
- Relaxation of business interest expense limitation
Companies must evaluate the impact of these provisions on deferred tax assets and liabilities and ETR under ASC 740.
For many companies, especially those without valuation allowances, the effects of the OBBBA may be straightforward and may not materially impact the ETR in 2025. However, for companies with valuation allowances, the OBBBA could materially impact deferred schedules. Modeling will be crucial for measuring the impact.
Additionally, while the international provisions in the OBBBA, like changes to Global Intangible Low-Taxed Income (GILTI), renamed Net CFC Tested Income (NCTI) under OBBBA, Base Erosion and Anti-abuse Tax (BEAT) and Foreign-Derived Intangible Income (FDII), renamed Foreign-Derived Deduction Eligible Income (FDDEI) under OBBBA, take effect after Dec. 31, 2025, and therefore will not affect 2025 financials, companies must still disclose non-recognized subsequent events in their financial statement footnotes. This includes the nature of the event and its estimated effect. If an estimate is unavailable, a statement must be included.
Tyson Foods’ 2025 10-K (fiscal year ended Sept. 27, 2025) provides another example for OBBBA-related disclosures, noting the law’s limited impact on the current year but highlighting expected benefits in future cash tax payments:
“On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted into law. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitation. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The legislation did not have a material impact on our fiscal 2025 effective tax rate or consolidated financial statements and is not expected to have a material impact in fiscal 2026 but is expected to result in lower cash tax payments in fiscal 2026. We continue to review the OBBBA tax provisions to assess impacts to our consolidated financial statements.”
What happens when OBBBA meets ASU 2023-09?
What happens when the new tax law changes from the OBBBA intersect with the updated disclosure requirements under ASU 2023-09?
Scenario: Valuation allowance changes
If a company reanalyzes a valuation allowance position due to OBBBA, resulting in a new deferred tax position that triggers a change in valuation allowance, where is this disclosed?
Under ASU 2023-09, there are two key sections where such items might be reported: one covering effects of tax law changes or rates enacted in the current period, and another specifically addressing changes in valuation allowances. Read further insights in the guidance overview section below.
- Possible policy election: ASU 2023-09 has separate categories for effects of tax law changes and changes in valuation allowances.
- The general rule: Changes in valuation allowances are typically isolated in the changes in valuation allowance category, or foreign tax effects for foreign valuation allowance, rather than tax law changes.
Policy election opportunity: Since the FASB has not explicitly addressed OBBBA interaction, companies might explore a policy election to classify the portion of a valuation allowance change directly related to OBBBA under Tax Law Changes. This requires adequate disclosure and discussion with your independent auditor. Alternatively, the company may decide it is more appropriate without specific guidance from FASB to keep such amount within the changes in valuation allowance category with qualitative disclosure of the amount of the change in valuation allowance directly attributable to the OBBBA.
Scenario: Uncertain tax positions
If an uncertain tax position changes as a result of OBBBA, it generally is reported in the changes in unrecognized tax benefits category, not tax law changes.
- Netting exception: Companies can adopt a policy election to present specific tax positions (like R&D credits earned in the current period) on a net basis (net of related uncertain tax position recorded in the current period) in the tabular reconciliation.
- Prior periods: However, changes in judgment related to prior period positions are always reflected in the changes in unrecognized tax benefits category.
Scenario: Cross-border provisions (2026 and beyond)
As new computation rules for NCTI and FDDEI come into effect, questions arise regarding marginal differences enacted by OBBBA.
- Guidance: Changes related to international tax provisions generally remain in the cross-border tax laws category and are not grouped with changes in tax laws or rates enacted in the current period.
Guidance overview
Generally, changes in tax laws may lead to a revaluation of deferred taxes. The changes in tax laws or rates enacted in the current period category captures the cumulative tax effects of changes in enacted tax laws or rates as of the enactment date. Cumulative tax effects of a change in enacted tax laws or rates include a redetermination and remeasurement of deferred tax assets and liabilities, and the tax effects of any change to current income taxes payable or refundable at the enactment date (see ASC 740-10-50-12A(a)(3) and (c)(4)).
For example, when the TCJA lowered the corporate tax rate from 35% to 21%, the impact on the current period was generally reflected in the statutory rate. However, the revaluation of deferred taxes was separately disclosed, especially by public companies. Please refer to: ASC Topic 740: How Tax Law Changes Can Impact Reporting discussing TCJA related disclosures for 10-Qs that included the enactment date.
Under ASU 2023-09, changes in valuation allowances (includible in income taxes expense attributable to continuing operations) for domestic federal income taxes are generally included in the changes in valuation allowance category of the tabular reconciliation, while valuation allowances for domestic state income taxes are grouped with other reconciling items in the domestic state income taxes, net of federal effect category. Foreign valuation allowances are presented in the foreign tax effects category, broken down by country and disaggregated by nature if they meet the 5% threshold.
Bottom line
Given the impacts of OBBBA, while we do not expect significant activity in the new ASU 2023-09 disclosures under the changes in tax laws or rates enacted in the current period category of the rate reconciliation, the guidance introduces nuances that require careful consideration, especially in areas where the rules are not entirely clear.
Stay tuned as we continue to unpack these changes and help you navigate the evolving tax landscape! We will continue to monitor Form 10-K filings, providing further insights as they develop. Subscribe to our tax communications and never miss an update.
Year-end action plan: What should you do now?
To ensure compliance and maximize transparency, we recommend the following steps:
- Update footnote templates: Incorporate ASU 2023-09’s new requirements for disaggregation in the tabular reconciliation and jurisdictional tax payments
- Assess materiality: Apply judgment for immaterial items as outlined in ASC 105-10-05-6
- Prepare SAB 74 disclosure: Clearly explain the anticipated effects of ASU 2023-09 adoption
- Monitor legislative changes: Reflect OBBBA provisions in your tax rate reconciliation and deferred tax calculations
- Enhance data systems: Ensure your systems can track taxes paid by jurisdiction and new disclosure categories
- Discuss impacts with senior management: Ensure company leadership can explain the items in the new disclosures
- Engage auditors early: Discuss potential issues and policy elections with your auditors early to allow time for review and comments
- Update processes and controls: Given the time constraints and additional disclosures, your processes and controls will need to be modified to comply with the new rules
Conclusion
The convergence of ASU 2023-09 and the OBBBA marks a pivotal shift in income tax reporting. Proactive planning, including updates to templates, system enhancements and monitoring legislative changes will help your business provide transparency as tax laws evolve. Baker Tilly tax professionals can help you navigate these changes and ensure your 2025 financial statements are compliant and insightful for your stakeholders.
