Given the extended time horizons that are necessary for effective tax planning, a firm date for the mandated adoption of IFRS can’t come soon enough. The changeover will be far more than an exercise in converting from FAS 109 to IAS 12. It will have far-reaching impacts on corporate taxpayers and their auditors, tax practitioners, and the IRS itself.

Innumerable advisories from the Big Four accounting firms have explored various nooks and crannies of the Tax-IFRS connection, but if you’re looking for an overview of the changeover’s likely effects on all stakeholders — including the IRS — the best I’ve come across is an article by the AICPA’s George L. White (available here). Based on a series of roundtables offered earlier this year by the Large and Midsize Business Division of the IRS, the paper explores five topics:

Earnings and profits. While E&P is purely a tax concept and may seem remote from financial accounting, the shift to IFRS will complicate this computation because it will change the books and records that it’s based on. And here White — clearly a lover of baseball — offers an analogy with a certain technique used by Brooklyn Dodger great Don Newcombe, which I won’t describe here, but which makes fascinating reading for fans of the sport.

Transfer pricing. This one could be a real headache for the IRS. The comparable-profits data that’s needed to document compliance with the arm’s-length standard will be harder to come by. “Complications in using competitors’ published financial statements are certain to arise when, as has already occurred, IFRS is adopted by the home countries of some competitors before the United States,” White notes. Multiyear comparisons will be trickier, too.

Inventory issues, including LIFO. No other potential impact of IFRS has received more attention than the termination of last-in, first-out inventory accounting. Switching to another method will result in a positive adjustment to income, White notes, which the IRS may allow to be spread over four years.

Revenue recognition. These waters have been muddied by a December discussion paper from the FASB and the International Accounting Standards Board which proposes a new set of standards different from both GAAP and IFRS. The new approach, which reflects the current emphasis on fair-value accounting, “will come as a distinct surprise” to “those of us who learned about the accrual system in Accounting 101,” says White.

Change of accounting methods. Companies need permission from the IRS before changing their tax accounting methods (for example, if they’re switching from LIFO). But whether they will actually apply for the go-ahead is unclear. And if they do, the IRS may find itself inundated with requests.

Clearly, there’s an ongoing need for training for all parties, White concludes — and especially for the IRS’s agents. ###