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columns labeled “Topic 606” present 100% deductible category, possibly
This article outlines the consequences of not implementing resulting in significant tax savings. As
long as the taxpayer is properly ap-
the practical expedient.
a potential strategy In this example, the firm reclassi- plying Topic 606, and the timing of
for taxpayers fies approximately $20 million (5% income recognition is not affected, the
negatively affected annual interest, $400 million in gross current tax law should support this al-
location. ■
receivables) as interest income. This
by the interest increases the allowed business interest
deductibility limits expense (see the table “Excerpts From
Form 8990,” line 30) by $12.5 mil-
imposed by lion under 2021 rules and $14 million
Sec. 163(j). under 2022 rules. This leads to less Contributors
taxable income and consequent tax
Neal Vandenberg, CPA, Ph.D., is a
(see the table “Excerpts From Form
business consultant, tax/financial
1120,” line 31): $2,625,000 less in
strategist, and former member of the
2021 and $2,940,000 less in 2022.
accounting faculty at Grand Valley
excerpts from Form 8990, Limitation
on Business Interest Expense Under Sec- A potential strategy State University (GVSU) in Grand
Rapids, Mich. Jonathan Brignall, CPA,
tion 163(j), under two scenarios for In summary, this article outlines a po-
J.D., M.Acc., M.Tax., MBA, is an
tax years 2021 and 2022 under the as- tential strategy for taxpayers negatively
assistant professor of accounting at
sumed facts. affected by the interest deductibility
GVSU specializing in taxation. Richard
In the tables “Excerpts From Form limits imposed by Sec. 163(j). By
Schneible, Ph.D., is an assistant
1120” and “Excerpts From Form choosing to forgo the practical expedi-
professor of accounting at GVSU
8990,” the columns labeled “Practical ent, adjusting the transaction price for
specializing in financial accounting.
Expedient” show the results of making the financing component, and present-
For more information about this article,
the choice to ignore the time value ing the effects of interest income sepa-
contact thetaxadviser@aicpa.org.
of money when calculating the trans- rately from revenue from contracts,
action price under Topic 606. The more interest can be treated under the

AICPA RESOURCES

Articles CPE self-study
Reiris et al., “Revenue Recognition: Time to Implement the Final Revenue Recognition: Mastering the New FASB Requirements
Regulations,” 53 Tax Adviser 31 (February 2022) For more information or to make a purchase, visit
Walters and Wood, “Opportunities and Pitfalls With Automatic aicpa.org/cpe-learning or call the Institute at 888-777-7077.
Method Changes for Revenue Recognition,” 51 Tax Adviser 247
(April 2020)
Upcoming webcasts
“Revenue Recognition: Determining and Allocating the
Transaction Price,” Aug. 10, 2022, 1 p.m. – 3 p.m. EDT
“Revenue Recognition: Presentation and Disclosure,” July 28,
2022, 3 p.m. – 4 p.m. EDT

www.thetaxadviser.com June 2022 33