New Disclosure Rules Just Raised the Stakes for Your Tax Notices

Those “new disclosure rules” are ASU 2023-09, FASB’s 2023 update to ASC 740, which requires more granular, transparent income tax disclosures, especially around rate reconciliation and income taxes paid.

Corporate tax teams are rightly focused on how ASU 2023-09 will change the tax provision process. New rate reconciliations, more granular disclosures, and fresh expectations from auditors are all on the radar.

What is not getting nearly enough attention is the quiet workhorse underneath those disclosures: your tax notices.

If you are still treating notices as a back-office cleanup exercise, the new ASC 740 rules are about to expose how fragile that model really is.

A Quick Look at ASU 2023-09

On December 14, 2023, the Financial Accounting Standards Board issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The goal is to enhance transparency and decision usefulness of income tax disclosures for investors by improving information about an entity’s rate reconciliation and income taxes paid.

For public business entities, the standard requires a more detailed tabular effective tax rate reconciliation that uses specified categories and calls out reconciling items that cross a quantitative threshold of 5 percent of pretax income multiplied by the applicable statutory tax rate. All entities must now disaggregate income taxes paid (net of refunds) by federal, state and foreign, and further break out any jurisdiction that makes up at least 5 percent of total taxes paid.

These requirements are effective for public business entities for annual periods beginning after December 15, 2024, and for other entities one year later, with early adoption permitted.

Bloomberg Tax’s recent coverage of ASU 2023-09 echoes that theme. Their guide emphasizes that the new disclosures are meant to give users of financial statements clearer insight into what drives an entity’s tax rate and where it is actually paying cash taxes.

In plain language: regulators and investors are getting a sharper lens into why your tax rate is what it is and where income taxes are paid.

Where Tax Notices Enter The Picture

Those disclosures do not live in a vacuum. They sit on top of a messy operational reality: notices from federal, state and local tax agencies that drive adjustments to rates, balances, refunds and credits.

If you look at one representative month of NOTICENINJA usage, you can see how much activity sits underneath the disclosure lines.

In a single month, NOTICENINJA clients logged more than 70,000 tax notices across more than 100 distinct subtypes. That is not an edge case. It is standard operating reality for complex, multi-entity organizations.

When you group those subtypes, the connection to ASC 740 becomes clearer:

• Rate-related notices (anything with “rate” in the subtype, such as rate changes, rate exchanges and account number rate issues) make up about one third of all workflows in that month.
• One subtype, “Rate Exchange,” on its own accounts for about one quarter of total notice volume.
• When you combine rate-related notices with cash-impact notices like amount due, balance due, demand notices, refunds and offsets, they represent just over 40 percent of all monthly workflows.
  
  

Those streams of notices are not just operational noise. They are the raw events behind:

• Changes in state and local income tax expense,
• Adjustments tied to credits, overpayments and carryforwards, and
• the timing and amount of income taxes actually paid or refunded.

If that activity is scattered across Outlook folders, spreadsheets and shared drives, you are effectively building ASU 2023-09 disclosures on incomplete or delayed inputs.

ASU 2023-09 makes your notice data “audit-visible”

Several elements of ASU 2023-09 lean heavily on the kind of information that lives inside your notice workflows:

• Disaggregated income taxes paid. You now have to show income taxes paid (net of refunds) by federal, state and foreign, and highlight any jurisdiction that hits at least 5 percent of the total. That is only credible if you can tie payments, refunds and offsets back to the notices that triggered them.
• State and local detail. The standard pushes companies to give more decision-useful detail about state and local income tax expense. That is difficult to support if rate changes, rate exchanges and assessments are buried in unstructured workflows.
• Explaining reconciling items. When a reconciling item in your rate rec crosses the 5 percent threshold, you need to explain its nature, effect and underlying causes. Clusters of “Amount Due” or “Demand Notice” workflows in a particular jurisdiction are often exactly that cause, but only if you can see the pattern.

ASU 2023-09 does not create new tax notice types. It raises the bar on how clearly you can trace those notices into the tax rate and cash tax story you disclose to the market.

Turning tax notices into provision-ready data

For many organizations, the gap is not technical knowledge of ASC 740. It is the disconnect between the tax provision team and the people wrestling with notices every day.

Closing that gap starts with treating notices as structured data rather than ad hoc documents:

• Standardize subtypes. Group notices into meaningful categories such as rate exchange, rate change, amount due, credit balance, missing return, delinquent return, closed account, authorization response and more, across all jurisdictions.
• Attach entities and jurisdictions. Every notice should know which legal entity, FEIN and jurisdiction it belongs to, so provision and reporting teams can roll up activity quickly and confidently.
• Track the lifecycle. Capture not only the notice but also the resolution: amounts paid, credits applied, refunds received and penalties abated. That is the connective tissue between operational work and “income taxes paid” disclosures.

NOTICENINJA already does this at scale. That monthly volume is proof. But ASU 2023-09 raises the bar on how that data is shared with finance and controllership.

What Tax Leaders Should Do Next

As you implement ASU 2023-09, it is tempting to focus solely on provision software, templates and disclosure checklists. Those matter, but they are only as strong as the data underneath.

Three practical moves:

1. Map key reconciling items to notice patterns. For each major line in your rate reconciliation and income taxes paid disclosure, ask which notice types tend to drive it. Then confirm you can actually surface those patterns from your notice workflows.
2. Align tax provision and notice operations. Make sure teams working notices can tag and report exactly what provision teams need: state contributions, entity-level impacts and whether an item is cash or non-cash.
3. Treat notice workflows as part of your control environment. If notices drive adjustments to tax expense or taxes paid, they are no longer a back-office afterthought. They are inputs to investor-facing disclosures and should be governed accordingly.

ASU 2023-09 is a disclosure standard, but it is also a wake-up call. To tell a clear, defensible story about your tax rate and cash taxes, you need more than a polished rate reconciliation. You need to bring your tax notice operations into the center of the conversation and put the data they generate to work.

Use this year’s ASU 2023-09 rollout to elevate how you handle notices. Connect with NOTICENINJA and align your workflows with your income tax disclosures.

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