{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/718/740/#25-recognition","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"718","topic_title":"Compensation—Stock Compensation","subtopic":"718-740","subtopic_title":"Income Taxes","section":{"number":"25","label":"25 Recognition","anchor":"25-recognition","is_sec":false,"groups":[{"block":null,"heading":"Determination of Temporary Differences","paragraphs":[{"citation":"718-740-25-1","para":"25-1","html":"<div class=\"asc-body\"><div class=\"norm-text\">This guidance addresses how <a href=\"/glossary/t/#temporary-difference\" class=\"term\" title=\"A difference between the tax basis of an asset or liability computed pursuant to the requirements in Subtopic 740-10 for tax positions, and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Paragraph 740-10-25-20 cites examples of temporary differences. Some temporary differences cannot be identified with a particular asset or liability for financial reporting (see paragraphs 740-10-05-10 and 740-10-25-24740-10-25-25), but those temporary differences do meet both of the following conditions: Result from events that have been recognized in the financial statements Will result in taxable or deductible amounts in future years based on provisions of the tax law. Some events recognized in financial statements do not have tax consequences. Certain revenues are exempt from taxation and certain expenses are not deductible. Events that do not have tax consequences do not give rise to temporary differences.\"><span>temporary differences</span></a> are recognized for <a href=\"/glossary/s/#share-based-payment-arrangements\" class=\"term\" title=\"An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements.\"><span>share-based payment arrangement</span></a> <a href=\"/glossary/a/#award\" class=\"term\" title=\"The collective noun for multiple instruments with the same terms and conditions granted at the same time either to a single grantee or to a group of grantees. An award may specify multiple vesting dates, referred to as graded vesting, and different parts of an award may have different expected terms. References to an award also apply to a portion of an award.\"><span>awards</span></a> that are classified either as equity or as liabilities under the requirements of paragraphs <a href=\"/asc/718/10/#718-10-25-7\" class=\"xref\">718-10-25-7 through 25-19A</a>. Incremental guidance is also provided for issues related to <a href=\"/glossary/e/#employee-stock-ownership-plan\" class=\"term\" title=\"An employee stock ownership plan is an employee benefit plan that is described by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 as a stock bonus plan, or combination stock bonus and money purchase pension plan, designed to invest primarily in employer stock. Also called an employee share ownership plan.\"><span>employee stock ownership plans</span></a>.</div></div>","snippet":"This guidance addresses how temporary differences are recognized for share-based payment arrangement awards that are classified either as equity or as liabilities under the requirements of paragraphs 718-10-25-7 through …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:aad81621d6b1ae31087d934b9698e9e775f1c5e9ba3661aec660da2409ff38e7","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}},{"citation":"718-740-25-2","para":"25-2","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_D0564811-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law shall be considered to be a <a href=\"/glossary/d/#deductible-temporary-difference\" class=\"term\" title=\"Temporary differences that result in deductible amounts in future years when the related asset or liability is recovered or settled, respectively. See Temporary Difference.\"><span>deductible temporary difference</span></a> in applying the requirements of Subtopic <a altsource=\"GUID-3B0818A8-1B9D-4530-82D4-22D4284B582F.ditamap\" class=\"ditamap\">740-10</a>. The deductible temporary difference shall be based on the compensation cost recognized for financial reporting purposes. </span></span><span class=\"sfragment\" id=\"sfr_D0564988-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Compensation cost that is capitalized as part of the cost of an asset, such as inventory, shall be considered to be part of the tax basis of that asset for financial reporting purposes. </span></span></div></div>","snippet":"The cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law shall be considered to be a deductible temporary di…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:714056cd2cac2e8ccd2829a162397c8c40649fcc644d0ad0efd464c69062b574","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}},{"citation":"718-740-25-3","para":"25-3","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_D0564AA2-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Recognition of compensation cost for instruments that ordinarily do not result in tax deductions under existing tax law shall not be considered to result in a deductible temporary difference. </span></span><span class=\"sfragment\" id=\"sfr_D0564BA9-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">A future <a href=\"/glossary/e/#event\" class=\"term\" title=\"A happening of consequence to an entity. The term encompasses both transactions and other events affecting an entity.\"><span>event</span></a> can give rise to a tax deduction for instruments that ordinarily do not result in a tax deduction. The tax effects of such an event shall be recognized only when it occurs. An example of a future event that would be recognized only when it occurs is an employee's sale of shares obtained from an award before meeting a tax law's holding period requirement, sometimes referred to as a disqualifying disposition, which results in a tax deduction not ordinarily available for such an award. </span></span></div></div>","snippet":"Recognition of compensation cost for instruments that ordinarily do not result in tax deductions under existing tax law shall not be considered to result in a deductible temporary difference. A future event can give rise…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:762ff735eb445f1933af3aeb4fa967c79c09a5d59a4a3f9dc0ffad13e79bff95","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}},{"citation":"718-740-25-4","para":"25-4","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_D0564C84-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The cumulative amount of compensation cost recognized for instruments classified as liabilities that ordinarily would result in a future tax deduction under existing tax law also shall be considered to be a deductible temporary difference. The deductible temporary difference shall be based on the compensation cost recognized for financial reporting purposes. </span></span></div></div>","snippet":"The cumulative amount of compensation cost recognized for instruments classified as liabilities that ordinarily would result in a future tax deduction under existing tax law also shall be considered to be a deductible te…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0043ff0f8f4f24306b5ebe8bcfef5791d8e27ca5408f4cf2009257791c827ba0","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}},{"citation":"718-740-25-5","para":"25-5","html":"<div class=\"asc-body\"><div class=\"norm-text\">The following guidance addresses elements unique to an employee stock ownership plan. See Subtopic <a altsource=\"GUID-DA253E00-6584-4F8B-B0D4-A1EC58912753.ditamap\" class=\"ditamap\">718-40</a> for the non-income-tax accounting requirements and terminology applicable to employee stock ownership plans.</div></div>","snippet":"The following guidance addresses elements unique to an employee stock ownership plan. See Subtopic 718-40 for the non-income-tax accounting requirements and terminology applicable to employee stock ownership plans.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8ada9e0f3e4a091e3301baaa05db517f7b1410051d308d8034e44d88b066dba5","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}},{"citation":"718-740-25-6","para":"25-6","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_D0564D6C-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">For employers with leveraged employee stock ownership plans, the amount of employee stock ownership plan-related expense reported under the requirements of Subtopic <a altsource=\"GUID-DA253E00-6584-4F8B-B0D4-A1EC58912753.ditamap\" class=\"ditamap\">718-40</a> for a period may differ from the amount of the employee stock ownership plan-related income tax deduction (prescribed by income tax rules and regulations) for that period. </span></span><span class=\"sfragment\" id=\"sfr_D0564F1A-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Differences result in either of the following situations: </span></span><ol class=\"ol-norm\"><li class=\"li-norm\"><span class=\"linum\">a</span><div class=\"p\"><span class=\"sfragment\" id=\"sfr_D0564FF0-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The <a href=\"/glossary/f/#fair-value\" class=\"term\" title=\"The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.\"><span>fair value</span></a> of shares committed to be released differs from the cost of those shares to the employee stock ownership plan. </span></span></div></li><li class=\"li-norm\"><span class=\"linum\">b</span><div class=\"p\"><span class=\"sfragment\" id=\"sfr_D05650CB-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The timing of expense recognition is different for income tax and financial reporting purposes. </span></span></div></li></ol><span class=\"sfragment\" id=\"sfr_D056519C-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Such differences shall be reported in accordance with the requirements of Subtopic <a altsource=\"GUID-3B0818A8-1B9D-4530-82D4-22D4284B582F.ditamap\" class=\"ditamap\">740-10</a>. </span></span></div></div>","snippet":"For employers with leveraged employee stock ownership plans, the amount of employee stock ownership plan-related expense reported under the requirements of Subtopic 718-40 for a period may differ from the amount of the e…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bdb6ed050eaa33169b31071325acfc854af5be852b75eaf906a67b81314508be","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}},{"citation":"718-740-25-7","para":"25-7","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_D05652A8-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Employers with nonleveraged employee stock ownership plans may accrue compensation cost for financial reporting purposes earlier than the cost is deductible for income tax purposes. </span></span><span class=\"sfragment\" id=\"sfr_D0565370-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Accruing the compensation cost earlier for financial reporting purposes creates a temporary difference under the requirements of Subtopic <a altsource=\"GUID-3B0818A8-1B9D-4530-82D4-22D4284B582F.ditamap\" class=\"ditamap\">740-10</a>. </span></span></div></div>","snippet":"Employers with nonleveraged employee stock ownership plans may accrue compensation cost for financial reporting purposes earlier than the cost is deductible for income tax purposes. Accruing the compensation cost earlier…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bd32e5e74860d78854e75003f0a999cc391c7509ca010344786f7730e113279a","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}},{"citation":"718-740-25-8","para":"25-8","html":"<div class=\"asc-body\"><div class=\"norm-text\">See Section <a altsource=\"GUID-36583D54-9F93-407E-ACB8-F667A92CE6C8.ditamap\" class=\"ditamap\">718-40-55</a> for several illustrations of the accounting for employee stock ownership plans, including the related income tax accounting.</div></div>","snippet":"See Section 718-40-55 for several illustrations of the accounting for employee stock ownership plans, including the related income tax accounting.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9aaafefb4ce239880d3bd4197de1e01995cdfb7613fdeec835a70e15d602d667","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}},{"citation":"718-740-25-9","para":"25-9","html":"<div class=\"asc-body\"><div class=\"norm-text\"><a href=\"/updates/asu-2016-09/\" class=\"xref\">Paragraph superseded by Accounting Standards Update No. 2016-09</a>.</div></div>","snippet":"Paragraph superseded by Accounting Standards Update No. 2016-09.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a78deff06ab31765d660f8eb87183a591ac05f9ac34871fa61c400ead632e3c0","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}},{"citation":"718-740-25-10","para":"25-10","html":"<div class=\"asc-body\"><div class=\"norm-text\"><a href=\"/updates/asu-2016-09/\" class=\"xref\">Paragraph superseded by Accounting Standards Update No. 2016-09</a>.</div></div>","snippet":"Paragraph superseded by Accounting Standards Update No. 2016-09.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7098517d15b478555e07cda1f50e49a88d25e8bd7390809bc667c86977057b35","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477323","source_sha256":"6a693558c5f3dd3ef6c8d4ac122a205a701ba45c3c15c755db9b5117b5c6c22f"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:34ed216fd1a8cf520a2c1370e3946a10c7884b2c681bf8da5bfe4c4da19e8308","downloaded_from":"2026-09-10T01:06:33.294Z","last_downloaded_at":"2026-09-10T01:06:33.294Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not 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