Accounting for Income Taxes — FASB ASC 740 (Portfolio 5000)

Accounting Standards Codification Topic 740 includes financial accounting and reporting guidance for the effects of income taxes that result from an entity's activities during the current and preceding years. It codified the guidance that was previously included in Statement 109, APB 23 and other FASB statements and EITF consensuses. To access this Portfolio, visit Bloomberg Tax Financial Accounting Resource Center for a free trial.

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Description

This guide is designed to summarize the accounting literature related to accounting for income taxes.

Accounting Standards Codification Topic 740 includes financial accounting and reporting guidance for the effects of income taxes that result from an entity's activities during the current and preceding years. It codified the guidance that was previously included in Statement 109, APB 23 and other FASB statements and EITF consensuses.

This publication has been updated for EY interpretative guidance through October 2017. We have updated and expanded our guidance covering a variety of topics including foreign and domestic subsidiary temporary differences, intercompany transactions, valuation allowances, business combinations, intraperiod tax allocation, balance sheet presentation, share-based payment issues, and allocation methods for separate financial statements of a subsidiary. Updated and expanded sections are indicated in the respective heading as well as in Appendix D.

Excerpts from, and references to, the Accounting Standards Codification are contained within this guide. Guidance that may still be applicable but is based on non-authoritative standards not included in the FASB's Accounting Standards Codification is included in an appendix.

EY professionals are prepared to help you identify and understand the issues related to income taxes. In addition, our audit and tax professionals would be pleased to discuss with you any other issues related to your tax and financial reporting needs.

Authors

Ernst & Young LLP

Table of Contents

Detailed Analysis
I. Introduction
II. Scope
Introductory Material
A. General
B. State Income Taxes
C. Partnerships and Other Flow-Through Entities
D. Excise Taxes—Not-for-Profit Foundations
III. Objectives and Basic Principles
Introductory Material
A. Basic Approach
B. Exceptions to Comprehensive Accounting for Deferred Taxes
1. Leveraged Leases
a. Leveraged Lease Tax Credits as Source of Taxable Income
b. Impact of Change in Effective Tax Rate
c. Impact of AMT on Leveraged Lease Accounting
d. Leveraged Leases Acquired in Business Combinations
2. Intercompany Transactions (prior to the adoption of ASU 2016-16)
a. Measurement of Prepaid Tax on Intercompany Transactions
(1) Consideration of NOLs and Intercompany Transactions
b. Classification of Prepaid Tax on Intercompany Transactions
c. Impact of Subsequent Changes in Tax Rates on Prepaid (Accrued) Taxes Attributable to Intercompany Transactions
d. Changes in Realizability of Prepaid (Accrued) Taxes Attributable to Intercompany Transactions
e. Uncertain Tax Position Considerations
f. Business Combinations
g. Intercompany Sale or Transfer of an Investment in a Consolidated Entity
2.A. Intercompany Transactions (following the adoption of ASU 2016-16) (updated October 2017)
a. Measurement of Prepaid Tax on Intercompany Sales or Transfers of Inventory
1. Consideration of NOLs and Intercompany Sales or Transfers of Inventory
b. Classification of Prepaid Tax on Intercompany Transactions
c. Impact of Subsequent Changes in Tax Rates on Prepaid (Accrued) Taxes Attributable to Intercompany Transactions
d. Changes in Realizability of Prepaid (Accrued) Taxes Attributable to Intercompany Transactions
e. Uncertain Tax Position Considerations for Intercompany Sales or Transfers of Inventory
f. Business Combinations
g. Intercompany Sale or Transfer of an Investment in a Consolidated Entity
h. Intercompany Sale or Transfer of Assets Other Than Inventory
1. Consideration of NOLs and Intercompany Transactions Other Than Sales or Transfers of Inventory
3. Foreign Currency Differences
a. Nonmonetary Temporary Differences
b. Monetary Temporary Differences
(1) Taxation of Unrealized Gains and Losses
(2) Taxation of Realized Gains and Losses
c. Tax Indexation of Nonmonetary Assets
C. Remeasurement in Highly-Inflationary Economies
1. Highly Inflationary Economy—Change in Functional Currency
2. General Price-Level Changes—Restatement of Financial Statements
IV. Temporary Differences
Introductory Material
A. Temporary vs. Permanent Differences
B. Identifying Cumulative Temporary Differences
1. Temporary Differences Related to LIFO Inventory
2. Temporary Differences—Change in Tax Method of Accounting
3. Tax-to-Tax Differences
4. Temporary Differences Related to State Income Taxes
5. Different Tax and Fiscal Year Ends
a. Payments to the IRS to Retain Fiscal Year
6. Impact on Deferred Taxes of Ability to Delay Payment
7. Tax-Planning Strategies
8. Government Assistance Received (Investment Tax Credits and Government Grants)
a. Scope (Updated September 2013)
b. Investment Tax Credits
c. Grant Accounting
d. Temporary Differences Related to Government Assistance Received
e. Other Considerations
f. Investments In Qualified Affordable Housing Projects
1. Overview
2. Qualifying for the Proportional Amortization Method
3. Applying the Proportional Amortization method (Updated September 2014)
4. Investments In Other Tax Credits
5. Disclosure Requirements for Investments In Qualified Affordable Housing Projects
9. Temporary Differences—Examples
10. Temporary Differences—Financial Services Industry
C. Scheduling the Reversal of Temporary Differences
1. Determining Reversal Dates
2. Examples of Temporary Difference Reversal Patterns
3. Change in Method Used to Determine Reversal Pattern
D. Basis Differences Without Future Tax Consequences—Permanent Differences
E. Temporary Differences Without Financial Reporting Asset or Liability
F. Asset Retirement Obligations
V. Recognition and Measurement
Introductory Material
A. Applicable Tax Rates
1. Average Graduated Tax Rates
2. Applicable Tax Rate to Measure Temporary Differences Related to Indefinitelived Intangible Assets
B. Enacted Tax Rate
C. Dividends Received Deductions
1. Rate Differential on Distributed or Undistributed Earnings (Including Subsidiary Dividend Paid Tax Credits)
a. Consolidated Financial Statements
b. Separate Financial Statements of a Subsidiary
2. Shareholders' Tax Credits for Dividends Paid
D. Tax Holidays
1. Applicable Tax Rate in a Tax Holiday Period
E. Alternative Minimum Tax
1. Overview of the US Corporate AMT System
2. Effect of the AMT on Deferred Tax Calculations
3. Examples of AMT Calculations and Related Tax Provisions
F. State and Local Income Taxes
1. State Applied vs. Enacted Tax Rates
2. Estimating Deferred State Income Taxes
3. Income Apportionment
4. State Taxes Based on the Greater of Franchise Tax or Income Tax
a. Revised Texas Franchise Tax
b. Franchise Tax Effect on Deferred State Income Taxes
5. State Taxes Based on Items Other Than Income
G. Special Deductions
1. Domestic Production Activities Deduction
VI. Valuation Allowance
Introductory Material
A. Sources of Taxable Income
1. Liabilities for Uncertain Tax Positions as a Source of Taxable Income (Updated September 2013)
B. Appropriate Character of Taxable Income
1. Carryforwards That Do Not Expire
C. Future Reversal of Existing Temporary Differences
1. Limitations on Taxable Temporary Differences Related to Indefinite Lived Assets as a Source of Future Taxable Income (Updated October 2011 and September 2014)
2. Operating Loss and Tax Credit Carrybacks (Updated September 2013 and September 2015)
a. Availability of tax credits
3. Tax Benefit Substitution Versus Realization
D. Tax-Planning Strategies
1. Tax-Planning Strategies—Optionality
2. Tax-Planning Strategies—Examples
3. Consideration of Significant Expenses
a. Classification of Expenses to Implement Tax-Planning Strategies
4. Tax Elections
E. Future Taxable Income
1. Consistency of Assumptions and Projections
a. Recovery of Investments in Subsidiaries
b. Undistributed Earnings of a Foreign Subsidiary
2. Projections of Future Income
3. Originating and Reversing Temporary Differences (updated October 2017)
F. Evaluation of Positive and Negative Evidence
1. Cumulative Losses (Updated October 2011)
a. Unusual, Nonrecurring, and Noncash Charges
b. Emergence From Bankruptcy
2. Going Concern Opinion
3. Other Negative Evidence
4. Evaluation of Operating Loss and Tax Credit Carryforwards
5. Limitation of Net Operating Loss Carryforwards (Updated October 2011 and September 2013)
6. Considerations for the Release of a Valuation Allowance (Updated October 2011)
G. Available Evidence
H. Foreign Tax Credit Carryforwards
I. Effect of Alternative Minimum Tax (AMT) on Deferred Tax Assets
J. Future Tax Benefits Deemed Worthless
K. Valuation Allowances in a Business Combination
L. Intraperiod Tax Allocations
1. Valuation Allowances for Certain Debt and Equity Securities (prior to the adoption of ASU 2016-01)
1A. Valuation Allowances for Certain Debt and Equity Securities (following the adoption of ASU 2016-01)
2. Valuation Allowances for Amounts Recorded in Other Comprehensive Income Related to Postretirement Benefit Plans
VII. A Change in the Valuation Allowance
Introductory Material
A. General
B. Changes in Valuation Allowances—Business Combinations
C. Valuation Allowances for Temporary Differences Related to Undistributed Earnings of a Foreign Subsidiary
D. Intraperiod Tax Allocations
1. Valuation Allowances for Certain Debt and Equity Securities (prior to the adoption of ASU 2016-01)
1A Valuation Allowances for Certain Debt Securities (following the adoption of ASU 2016-01) (updated October 2017)
2. Valuation Allowances for Amounts Recorded in Other Comprehensive Income Related to Postretirement Benefit Plans
VIII. An Enacted Change in Tax Laws or Rates
Introductory Material
A. Changes in Tax Laws and Rates
1. Regulatory Changes Akin to Legislative Changes
B. Enactment Date
1. Enactment Date (United States)
2. Enactment Date (Australia)
3. Provisional Measures
C. Effects of Rate Changes on Deferred Tax Assets
D. Retroactive Change in Enacted Tax Rates
E. Changes in Tax Rates Following Adoption of New Accounting Standards
F. Change in Tax Law or Rates Related to Items Not Recognized in Continuing Operations
G. Changes in Tax Accounting Methods
1. Discretionary Change in Tax Accounting Methods
2. Nondiscretionary Change in Tax Accounting Methods
3. Presentation of a Change in Tax Accounting Method
4. Implementing a Change in Tax Accounting Method
H. Other Discussions of the Impact of Changes in Tax Rates
IX. Change in the Tax Status of an Entity
Introductory Material
A. General
B. Conversion of a Partnership to a Corporation
1. Outside Basis Considerations Related to a Conversion of a Partnership to a Corporation
C. Change in Tax Status as a Result of Acquisitions
D. Change in Tax Status - Subsequent Event
1. Change in Tax Status - Effective Date Versus Financial Reporting Date
E. Built-in Gains
F. Upon Consummation of Initial Public Offering
G. Loss of Nontaxable Status
H. REIT Conversion
X. Regulated Entities
Introductory Material
A. General
B. Regulatory-Assisted Acquisitions of Financial Institutions
C. Business Combinations
D. Impact of Regulatory Requirements
XI. Business Combinations
Introductory Material
A. General
B. Tax Effects of Basis Differences
1. Changes in Tax Basis
a. Tax Effects of Obtaining a Step-up In Inside-tax Basis of acquired Net Assets (Updated September 2013)
a. Tax Effects of a Post-Acquisition Merger
b. Post-Combination Intercompany Transactions
c. Post-Combination Intercompany Transfers of Acquired Intellectual Property
C. Identifiable Intangible Assets and Goodwill
1. Nondeductible Goodwill
a. Amortization of Non-Deductible Goodwill After Adoption of ASU 2014-02
2. Non-Deductible Identified Intangible Assets
3. Purchase Price Allocation Differences
4. Tax-Deductible Goodwill (Updated September 2014)
5. Goodwill Amortization and Impairment Allocation Policies
a. Financial Reporting Goodwill Not Amortized
b. Financial Reporting Goodwill Is Amortized
6. Excess Tax-Deductible Goodwill in Pre-ASC 805 Transactions
7. Changes in Acquirer's Valuation Allowance as a Result of a Business Combination
8. Disposal of Tax-Deductible Goodwill
D. Tax Consequences of Contingent Consideration
1. At Acquisition—Taxable
2. Post Acquisition—Taxable
3. At Acquisition—Non-Taxable
a. Deferred Tax Asset—Outside-Basis Difference
b. Deferred Tax Liability—Outside-Basis Difference
4. Post Acquisition—Non-Taxable
a. Deferred Tax Asset—Outside-Basis Difference
b. Deferred Tax Liability—Outside-Basis Difference
E. Deferred Taxes for Acquisition-Related Costs
1. Excess Tax Basis Over Financial Reporting Basis
2. Excess Financial Reporting Basis Over Tax Basis
F. Deposit-Based Intangibles
G. Acquired Research and Development Deferred Tax Liabilities
H. Impairment of Identifiable Intangible Assets and Goodwill
1. Impairment of Tax Deductible Goodwill
2. Impairment of Non-Deductible Goodwill
a. Allocation of Subsequent Impairments to Deductible and Non-Deductible Goodwill
I. Foreign Currency Temporary Differences From “Push-Down” Adjustments
J. Effects of Change in Tax Laws or Rates Subsequent to a Business Combination
K. Valuation Allowance in a Business Combination
1. Changes in a Valuation Allowance Established at the Acquisition Date
a. Pre-Statement 141(R) Business Combinations
L. Changes in a Tax Uncertainty Established at the Acquisition Date
1. Pre-Statement 141(R) Business Combinations
M. Effect of Acquirer-Specific Attributes on Measurement of Acquired Deferred Taxes
1. Valuation Allowance for Acquired Deferred Tax Assets
2. Apportioned Tax Rates
3. Unborn Foreign Tax Credits
4. Assertion Regarding Indefinite Reinvestment
a. Deferred Tax Accounting on Acquired Outside Basis Differences in Post-Combination Restructuring
N. Income Tax Effects of Replacement Awards Classified as Equity Issued in a Business Combination
1. Accounting for the Tax Effects of Incentive Stock Options (ISOs)
O. Differences in Measurement of Deferred Taxes in Separate Financial Statements of Subsidiary
P. Tax Effects of a Business Combination Achieved in Stages
1. Outside Basis Differences
a. Deferred Tax Liabilities for Domestic Subsidiaries Acquired in Stages
b. Deferred Tax Liabilities for Foreign Subsidiaries Acquired in Stages
c. Limitations on Deferred Tax Assets for Subsidiaries
2. Inside-Basis Differences
XII. Noncontrolling Interests
A. Reporting Noncontrolling Interests and Income Taxes in the Consolidated Income Statement
B. Changes in Ownership Interest in a Subsidiary Other Than in a Business Combination
1. Decreases in a Parent's Ownership Interest in a Subsidiary Without Loss of Control
2. Increases in a Parent's Ownership Interest in a Subsidiary
3. Other Tax Effects of Change in Ownership of Subsidiary
4. Loss of Control of a Subsidiary
XIII. Asset Acquisitions
A. Asset Acquisitions
1. Asset Acquired With Tax Basis Greater Than Book Basis
2. Asset Purchased for More Than Tax Basis
3. Deferred Credit From Tangible Asset Acquisition
4. Deferred Credit From the Acquisition of Assets Recorded at Fair Value
5. Valuation Allowance Reduced Due to Acquired Intangible Asset
6. Purchase of Future Tax Benefits
7. Transaction Directly With a Governmental Taxing Authority
XIV. Foreign and Domestic Subsidiaries and US Steamship Entity Temporary Differences
A. Introduction
1. Six-Step Process to Deferred Tax accounting for Outside Basis Differences
2. Exceptions to Deferred Tax Accounting for Outside Basis Differences
B. Investments in Foreign Subsidiaries
1. Foreign Versus Domestic Subsidiaries
2. Investments That Are Essentially Permanent in Duration
a. Inside Basis Differences of Foreign Subsidiaries
3. Partial Reinvestment
a. Dividends
4. Other Situations Involving “Indefinite Reversal”
a. Change in Status of Foreign Investees
5. Foreign Equity Method Investees and Corporate Joint Ventures
6. Exceptions to Recognition of Deferred Taxes on Undistributed Earnings and US Possessions
7. Foreign Operational Structures
a. Branch Offices
b. Partnerships
c. Hybrid Structures
d. Subpart F Income
8. Deferred Taxes Allocated to Translation Adjustments
a. Original Investment Not Indefinitely Reinvested
b. Hedge of a Net Investment
9. Applicability of ASC 740-30 Exception to Consolidated Variable Interest Entities
10. ASC 740-30 and Acquisition Accounting
11. Consideration of Unborn Foreign Tax Credits
12. Advance Corporate Tax Payments and Refunds (UK)
a. Frequently Asked Questions
C. Undistributed Domestic Earnings Before 1992
D. Bad-Debt Reserves of Savings and Loan Associations
E. Statutory Reserve Funds of US Steamship Companies
F. Investments in Domestic Subsidiaries
1. Basis Differences With Tax Consequences
a. Outside Basis Differences in Joint Ventures
b. Outside Basis Differences in Equity Method Investees—Applicable Rate (Updated September 2013)
2. Dividends Received Deduction
3. Basis Differences Without Tax Consequences
a. Expected Manner of Recovery of Investment
b. Change in Expected Manner of Recovery of Investment
4. Partnerships
5. State Tax Considerations for Outside Basis Differences for Investments in Domestic Subsidiaries
G. Limitations on Deferred Tax Assets
1. Disposals and Assets Held for Sale
XV. Intraperiod Tax Allocation
Introductory Material
A. Income Tax Expense (Benefit) Allocated to Continuing Operations—The Incremental Approach
1. Tax Effect of Pretax Income From Continuing Operations
a. Exception to General Principle of Allocation to Continuing Operations
(1). Level of Application
2. Changes in Tax Laws, Rates or Tax Status
3. Changes in the Valuation Allowance
4. Tax Benefit of Dividends on Shares Held by ESOP
a. Tax Benefit of Dividends on Allocated ESOP Shares
b. Tax Benefit of Dividends on Unallocated ESOP Shares
(1) Unallocated Shares Accounted for Under SOP 76-3 (Non-Authoritative)
B. Items Charged or Credited Directly to Shareholders' Equity
1. Income Taxes for Debt and Equity Securities Classified as Available for Sale (prior to the adoption of ASU 2016-01)
a. Initial Recognition of Unrealized Loss
b. Valuation Allowances (prior to the adoption of ASU 2016-01)
(1) Deferred Tax Assets Related to Unrealized Losses on Debt Securities (prior to the adoption of ASU 2016-01)
(2) Subsequent to Initial Recordation (prior to the adoption of ASU 2016-01)
(a) Changes Due to Changes in Portfolio Value
(b) Reductions Resulting From a Change in Judgment
(c) Increases Resulting From a Change in Judgment
c. Income Tax Rate Changes (prior to the adoption of ASU 2016-01)
d. Backward Tracing of Tax Effects (prior to the adoption of ASU 2016-01)
1A Income Taxes for Debt Securities Classified As Available for Sale (following the adoption of ASU 2016-01) (updated October 2017)
a. Initial recognition of unrealized loss (following the adoption of ASU 2016-01)
b. Valuation Allowances (following the adoption of ASU 2016-01)
1. Deferred Tax Assets Related to Unrealized Losses on Debt Securities
b. Subsequent to Initial Recordation (following the adoption of ASU 2016-01)
1. Changes Due to Changes in the Available-For-Sale Debt Securities Portfolio Value
2. Reductions Resulting From a Change In Judgement
3. Increases Resulting From a Change In Judgement
c. Income Tax Rate Changes (following the adoption of ASU 2016-01)
d. Backward Tracing of Tax Effects (following the adoption of ASU 2016-01)
2. Cumulative Translation Adjustment
a. Foreign Currency Hedges
3. Cash Flow Hedges
4. Deferred Taxes for Postretirement Benefit Plans
a. Recognition of Deferred Taxes for Activity in Postretirement Benefit Plans
b. Valuation Allowances
(1) Subsequent Recognition of Valuation Allowance
(2) Valuation Allowance Changes Due to Changes in Amounts in Other Comprehensive Income Related to Postretirement Benefit Plans
(3) Change in Judgment Resulting in Decreased Valuation Allowance
(4) Change in Judgment Resulting in Increased Valuation Allowance
c. “Lingering Effects” of Changes in Judgment on Other Comprehensive Income
d. Income Tax Rate Changes
5. Income Tax Consequences of Issuing Convertible Debt
a. Income Tax Consequences of Issuing Convertible Debt With a Beneficial Conversion Feature
b. Income Tax Consequences of Issuing Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
6. Order of Tax Deductions for Excess Stock Compensation—Prior to Application of ASC 718
7. Tax Effects of Transactions Among or With Shareholders
a. Tax Effects of Spin-off Transactions
b. Need for a Valuation Allowance By the Subsidiary When There Is a Spin-off Transaction
8. Tax Benefits of Pre-Reorganization Temporary Differences and Carryforwards
C. Operating Loss Tax Benefit—Backward Tracing Prohibited
D. Intraperiod Tax Allocation Examples
XVI. Reorganizations
Introductory Material
A. General
B. Bankruptcies (Updated September 2014)
XVII. Separate Financial Statements of a Subsidiary
Introductory Material
A. General
B. SEC Staff Position
C. Carve Out Financial Statements
D. Other Allocation Methods (Non-SEC Filers) (updated September 2015)
XVIII. Financial Statement Presentation
Introductory Material
A. Balance Sheet Presentation (Updated October 2011 and September 2015)
1. Offset of Deferred Tax Assets and Liabilities (Updated September 2013 and September 2014)
a. State and Local Income Taxes and Valuation Allowance (Updated September 2013)
B. Disclosures About Balance Sheet Accounts
1. Components of Balance Sheet Deferred Tax Amounts
2. Net Operating Loss and Tax Credit Carryforwards
3. Subsequent Recognition of Tax Benefits
4. Indefinite Reversal Exceptions
5. Other Balance Sheet Related Disclosures
C. Disclosures About Income Statement Accounts
1. SEC Staff Position
D. Disclosure of Changes in Tax Laws or Rates
E. Interest and Penalties Due to Taxing Authorities
F. Professional Fees
G. Reconciliation to Statutory Rate
H. Illustrative Financial Statement Note Disclosure (Updated September 2013)
I. Management's Discussion and Analysis—SEC Staff Positions
1. Management's Discussion and Analysis Disclosure Requirements
XIX. Accounting for Uncertainty in Income Taxes
A. Introduction
B. Scope
1. Taxes Within Scope
2. Entities Within Scope
C. Unit of Account
1. Unit of Account
2. Consistency
3. Attribution of Income Taxes to the Entity or Its Owners
D. Recognition
1. More Likely Than Not
2. Examination by the Taxing Authority
3. Evaluating the Technical Merits of Individual Tax Positions
a. Sources of Authoritative Tax Laws (Updated September 2014)
b. Tax Opinions and Levels of Authority for a Tax Position (Updated September 2014)
4. Administrative Practices and Precedents
a. Self-Reporting Obligation
5. Disaggregation
6. General Reserves
7. Tax Indemnification Agreements (Updated October 2011)
a. Tax Indemnification Agreements in a Business Combination (Updated October 2011)
b. Tax Indemnification Agreements in a Spin-Off Transaction (Updated October 2011)
c. Other Tax Indemnification Agreements (Updated October 2011)
8. Amended Tax Returns and Tax Refund Claims (Updated September 2014)
E. Measurement of Tax Positions
1. Measurement
a. Binary Tax Positions (Updated September 2014)
2. Highly Certain Tax Positions
a. Documentation of Highly Certain Tax Positions
3. Measurement of a Tax Position After an Audit Settlement
4. Differences Related to Timing
5. Transfer Pricing (Updated September 2014)
F. Tax-Planning Strategies
1. Tax-Planning Strategies
G. Subsequent Recognition, Derecognition, and Measurement
1. Subsequent Recognition
a. Effectively Settled
b. Change in Assessment of Technical Merits
2. Effect of Completion of an Audit on Change in Measurement
3. Examples—Various Stages of an Audit on Recognition and Measurement
a. Audit Milestones
b. Payment of Taxes as a Prerequisite to Petition a Court
4. Derecognition of a Tax Position
5. New Information vs. New Evaluation
6. Changes in Judgment
7. Intraperiod Tax Allocation
8. Subsequent Events
9. Interim Reporting
H. Interest and Penalties
1. Interest
2. Penalties
I. Classification
1. Classification as Current or Non-Current
2. Accounting Policy Election
3. Interaction With ASC 718— prior to the adoption of ASU 2016-09
4. Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
a. Subsequent to the Adoption of ASU 2013-11 (Updated September 2013 and September 2014)
J. Disclosures
1. Disclosures Under ASC 740 for Uncertain Tax Positions (Illustration 19-5 Updated September 2013)
2. Disclosure Example
3. Interim Reporting
K. Implementation
1. SEC Shares Views on the Guidance in ASC 740 Related to Uncertainty in Income Taxes Adoption Issues
XX. Interim Reporting
Introductory Material
A. Estimated Annual Effective Tax Rate
1. Nonrecognized Subsequent Events
B. Operations Taxable in Multiple Jurisdictions
1. Income Tax Effects of a Change in an Indefinite Reinvestment Assertion
2. Zero-rate Jurisdiction
3. Effects of Deferred Tax Liabilities Related to Indefinite-lived Intangible Assets on the Estimated Annual Effective Tax Rate
C. Effect of New Tax Legislation
D. Computation of Interim Period Tax (or Benefit)
1. Exception of General Principle of Allocating Income Tax (Benefit) to Continuing Operations
2. Ability to Estimate the Annual Effective Tax Rate
E. Reversal of Taxable Temporary Differences
F. Tax (or Benefit) Applicable to Significant Unusual or Infrequently Occurring Items, or Discontinued Operations
1. Basis of Tax Provision
2. Discontinued operations
3. Gain from the disposal of a component of an entity
G. Using a Prior-Year Operating Loss Carryforward (Updated September 2013)
H. Examples
1. Estimated Annual Effective Tax Rate Computation and Effect of New Tax Legislation
a. Calculation of First-Quarter Income Tax Expense
b. Calculation of Second-Quarter Income Tax Expense When a Change in Tax Rates Occurs
2. Accounting for Income Taxes if an “Ordinary” Loss is Anticipated for the Fiscal Year
a. Realization of the Full Tax Benefit of Losses When Company Has “Ordinary” Losses in All Interim Periods
b. Realization of the Full Tax Benefit of Losses When Company Has “Ordinary” Income and Losses in Interim Periods and for the Year-to-Date Period
c. Partial Realization of the Tax Benefit of Losses When Company Has “Ordinary” Losses in All Interim Periods
d. Partial Realization of the Tax Benefit of Losses When Company Has “Ordinary” Income and Losses in Interim Periods and for the Year-to-Date Period
3. Accounting for Income Taxes Upon the Use of Prior-Year Net Operating Loss Carryforwards
a. Reversal of Valuation Allowance Because of Current-Year Ordinary Income
b. Reversal of Valuation Allowance Because of Estimated “Ordinary” Income in Future Years
XXI. Share-based payment (prior to the adoption of ASU 2016-09)
Introductory Material
A. ASC 718 Overview
B. Tax Effects of Awards That Normally Result In a Tax Deduction
1. Measuring Deferred Taxes for Deductible Awards
2. The Effect on Deferred Tax Assets of the IRC Section 162(m) Limitation
a. Section 162(m)(6) Limitations for Certain Health Insurance Providers
C. Valuation Allowances on Deferred Tax Assets
D. Realization of Tax Benefits
1. Tax Deduction Exceeds Recognized Compensation Cost
2. Tax Deduction Is Less Than Recognized Compensation Cost
3. Determining the Pool of Excess Tax Benefits
a. Entities to Be Included in the Pool of Excess Tax Benefits
b. Net Unrealized Excess Tax Benefits Acquired in a Purchase Business Combination
4. Determining When an Excess Tax Benefit Is Realized and Measuring the Excess Tax Benefit
a. Identifying and Measuring Deductions Realized During the Period
(1) Aggregation of Shortfalls and Windfalls
b. Identifying and Measuring Excess Tax Benefits in Foreign Jurisdictions
c. Realization of Tax Benefits on Awards Subject to Graded Vesting
d. Tax Effects of Liability Awards and Section 83(b) Elections
E. Examples of the Accounting for the Tax Consequences of Non-qualified Stock Options
1. Tax Deduction Exceeds the Amount of Cumulative Compensation Cost Recognized
2. Tax Deduction is Less Than the Amount of Cumulative Compensation Cost Recognized
F. Tax Effects of Awards That Normally Do Not Result in a Tax Deduction
1. Accounting for a Change In the Tax Status of an Award (e.g., Disqualifying Disposition)
a. Modifications of Incentive Stock Options
G. Other Issues
1. Income Tax Effects of Replacement Awards Classified as Equity Issued in a Business Combination
2. Impact of Research and Development Cost-sharing Arrangements on Deferred Taxes
3. Accounting for Income Tax Benefits of Dividends on Share Based Payments
4. Accounting for Payroll Taxes on Share-Based Payments (Not Subject to ASU 740)
H. Presentation
1. Balance Sheet Classification of Deferred Tax Assets Arising From Share Based Payments
2. Presentation of Excess Tax Benefits in the Statement of Cash Flows
I. Transition Issues
1. Deferred Taxes in Transition — Modified Prospective Transition
a. Calculating APIC Credits Available For Deferred Tax Asset Write-offs
b. Calculating the Initial Pool of Excess Tax Benefits Under the Original Method
c. Calculating the Initial Pool of Excess Tax Benefits Under the Alternative Method
(1) Initial Pool Calculation
(2) Subsequent Recognition of Tax Benefits
d. Calculating the Initial APIC Pool for Companies That Went Public After 1994
e. Summary of Deferred Tax Effects Under Modified Prospective Transition
2. Deferred Taxes in Transition — Prospective Transition
3. Accounting For Valuation Allowances on Excess Tax Benefits Recognized Prior to the Adoption of ASC 718
XXII. Share-Based Payment (following the adoption of ASU 2016-09)
A. ASC 718 Overview
B. Tax Effects of Awards That Normally Result In a Tax Deduction
1. Measuring Deferred Taxes for Deductible Awards
2. The Effect on Deferred Tax Assets of the IRC Section 162(m) Limitation
a. Section 162(m)(6) Limitations for Certain Health Insurance Providers
C. Valuation Allowances on Deferred Tax Assets
D. Realization of Tax Benefits
1. Tax Deduction Differs From Compensation Cost
2. Other Realization Considerations
a. Sale of a Subsidiary
b. Identifying and Measuring Excess Tax Benefits in Foreign Jurisdictions
c. Realization of Tax Benefits on Awards Subject to Graded Vesting
d. Tax Effects of Liability Awards and Section 83(b) Elections
E. Examples of the Accounting for the Tax Consequences of Non-qualified Stock Options
1. Tax Deduction Differs From the Amount of Cumulative Compensation Cost Recognized
F. Tax Effects of Awards That Normally Do Not Result in a Tax Deduction
1. Accounting for a Change in the Tax Status of an Award (e.g., Disqualifying Disposition)
a. Modifications of Incentive Stock Options
G. Other Issues
1. Income Tax Effects of Replacement Awards Classified as Equity Issued in a Business Combination
2. Impact of Research and Development Cost-sharing Arrangements on Deferred Taxes
3. Accounting for Income Tax Benefits of Dividends on Share-based Payments
4. Accounting for Payroll Taxes on Share-based Payments (Not Subject to ASC 740)
H. Presentation
1. Balance Sheet Classification of Deferred Tax Assets Arising From Share-based Payments
2. Presentation of Excess Tax Benefits in the Statement of Cash Flows
I. Transition Issues
1. Recording Tax Effects in Income Statement — Prospective Transition
2. Previously Unrecognized Tax Benefits — Modified Retrospective Transition
3. Presentation of Excess Tax Benefits on the Statement of Cash Flows — Retrospective or Prospective Transition
4. Disclosure
5. Early Adoption In An Interim Period

Working Papers

TABLE OF WORKSHEETS
Worksheet 1 Abbreviations Used in the Portfolio
Worksheet 2 (Non-Authoritative) Business Combinations—Prior to Adoption of Statement 141(R)