Going Virtual Or Downsizing Offices Could Cause Major Financial Impairment Charges

In an article titled “Abandoning Office Space Creates Lease Accounting Headaches” published in Bloomberg Tax, “In some cases, companies that shrink their office space have to book one-time impairment charges, or hits to earnings, to convey how the value of their leased real estate declined.. Mobile game developer Zynga, which makes Farmville and Words With Friends, is reducing its office space by one third and moving its primary office space south, from San Francisco to San Mateo. The company plans to sublease its San Francisco offices and expects to record an $80 million impairment charge in the next quarter, it said in its 10-Q filing. File-Sharing Dropbox is reducing the size of its San Francisco but it could incur up to a $450 million impairment charges related to the office space it no longer needs.” The article comments that these aren’t deal breakers but companies should be forwarned about potential tax implications of their actions.