The Tax Cuts and Jobs Act (TCJA) contained a provision that tied revenue recognition for book purposes to income reporting for tax purposes, for tax years starting in 2018. This law is having a major impact on industries dealing with contracts, such as construction, especially as companies implement the updated revenue recognition standard under U.S. Generally Accepted Accounting Principles (GAAP).
This accounting rule is causing some companies with complex, long-term contracts to recognize revenue earlier than in the past. All construction companies that report their financial statements under GAAP will need to implement the new standard within the accounting function affecting their internal controls, systems and processes. It may require advance payments to be taxed before they’re recognized on the financial statements. The net effect of these accounting rule and tax law changes could be substantially accelerated tax bills.