AICPA Issues New TQA: What CPAs Need to Know About OB3 and Financial Reporting

Welcome to the Genuine Learning Blog — your trusted resource for timely, relevant updates from all the standard setters.

If you’ve been wondering how the One Big Beautiful Bill Act (OB3) will affect your financial reporting for income taxes, you’re in the right place. GLS is committed to providing practical updates that empower CPAs to take actionable steps and drive measurable outcomes.

Why Did the AICPA Release a New TQA?

The AICPA recently issued a Technical Questions and Answers (TQA) document addressing the implications of OB3 for ASC 740, which covers income taxes.

Released in January 2026, this TQA clarifies some of the most confusing elements of the new federal tax legislation — without issuing new standards. While TQAs are non-authoritative, they are a valuable resource for CPAs, offering practical guidance when significant law changes like OB3 create uncertainty.

OB3: Major Changes and Practitioner Questions

Signed into law in January 2025, OB3 made substantial changes to U.S. federal tax laws. As expected, practitioners had questions — particularly about:

• Interim reporting under ASC 740 (Income Taxes)

• Enhanced tax disclosures required by ASU 2023-09

Let’s break down the main points addressed in the new TQA.

1. Interim Reporting: When to Recognize OB3 Effects

One of the biggest questions was when to recognize the effects of OB3 in financial statements.

The AICPA clarifies:

• Effects of OB3 should not be recognized before enactment.

• They must be recognized in the interim period that includes the enactment date.

For OB3, the enactment date is July 4, 2025.

During this period, entities must distinguish between:

• Discrete items

• Estimated Annual Effective Tax Rate (EAETR) items

Examples of Discrete Items

• Remeasurement of Deferred Tax Assets/Liabilities
  Changes in tax laws or rates, allocated to income tax expense from continuing operations.

• Effect on Prior-Year Current Taxes
  Changes in income taxes payable or refundable from prior years due to new tax laws or rates.

• Change in Valuation Allowance
  Adjustments based on new judgments about deferred tax asset realizability in future years.

Examples of EAETR Items

• Current-Year Taxes
  Effects of law or rate changes on taxes currently payable or refundable for the current year.

• Valuation Allowance on Current-Year Originations

Entities must evaluate OB3’s provisions — including elective elements — to determine which impacts are discrete and which affect the EAETR based on company-specific facts and circumstances.

2. ASU 2023-09: Impact on New Tax Disclosures

The TQA also addresses reporting requirements under ASU 2023-09, which aims to increase transparency and provide better insight into concentration risk.

• Public companies must provide a detailed numerical reconciliation in their income tax rate disclosure.

• Non-public companies must provide a qualitative (verbal) description.

How OB3 Should Be Reported

Federal Tax Effects
OB3 must be included in the category:
“Effective changes in tax laws or rates enacted in the current period.”

This reflects the cumulative effects of new tax laws or rates on current and deferred tax assets and liabilities as of the enactment date.

State and Local Tax Effects
These should be disclosed in:
“State and local income tax, net of federal income tax effect.”

This includes states that incorporate OB3 provisions into their own laws.

Valuation Allowance Changes

Careful judgment is required when classifying OB3-related valuation allowance changes in reconciliation categories.

Entities should:

• Provide clear explanations in the financial statements

• Describe the nature, effect, and underlying causes of reconciling items

• Outline the judgments used in categorizing these changes

This added transparency helps ensure disclosures are meaningful to investors and other stakeholders.