Does a retroactive tax abatement trigger income?

Prior year real estate tax bill was $180k, and 1st qtr payment was already made for this 7/31/2013 year-end client. The 7/31/2013 RE tax accrual was calculated made based on this. Taxes were abated by $80k, making prior year RE taxes overaccrued by $46,667. Is the appropriate current year accounting treatment to offset the overaccrual against current year RE tax expense, or to record it as Other Income?

Answers

Patrick Dunne Chief Financial Officer • October 27, 2014

In this case, I would credit the same account where you charge your real estate tax expense in the current year. Unless the company is really small, it's tough to justify re-opening any prior periods.

EMERSON GALFO CFO • October 27, 2014

I agree with Patrick but I will add a recommendation for a disclosure (or notes) on the statements especially if the numbers are material re: the size of the company or it skews your numbers.

Anonymous CFO • October 28, 2014

Another way of justifying this is that the original accrual was properly made on the actual bill issued by the county.

The "abatement" event occurred in a later year and thus, should apply to the period in which the abatement event occurred, even if it was abatement for a previously issued, but then correct tax bill.

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Does a retroactive tax abatement trigger income?

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