# ASC 718-740-25: Compensation—Stock Compensation — Income Taxes — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/718/740/#25-recognition) 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. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:053dee0142dbdc0b4be1e333fc2ca3b91aa31e958f91774c5546b1f3849554c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 718-740-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/718/740/#25-recognition) SEC content: no #### Determination of Temporary Differences ##### [718-740-25-1](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:aad81621d6b1ae31087d934b9698e9e775f1c5e9ba3661aec660da2409ff38e7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses how [temporary differences](https://asc.understandingaccounting.org/glossary/t/#temporary-difference "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.") are recognized for [share-based payment arrangement](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-arrangements "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.") [awards](https://asc.understandingaccounting.org/glossary/a/#award "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.") that are classified either as equity or as liabilities under the requirements of paragraphs [718-10-25-7 through 25-19A](https://asc.understandingaccounting.org/asc/718/10/#718-10-25-7). Incremental guidance is also provided for issues related to [employee stock ownership plans](https://asc.understandingaccounting.org/glossary/e/#employee-stock-ownership-plan "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."). ##### [718-740-25-2](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:714056cd2cac2e8ccd2829a162397c8c40649fcc644d0ad0efd464c69062b574 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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 difference](https://asc.understandingaccounting.org/glossary/d/#deductible-temporary-difference "Temporary differences that result in deductible amounts in future years when the related asset or liability is recovered or settled, respectively. See Temporary Difference.") in applying the requirements of Subtopic 740-10. The deductible temporary difference shall be based on the compensation cost recognized for financial reporting purposes. 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. ##### [718-740-25-3](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:762ff735eb445f1933af3aeb4fa967c79c09a5d59a4a3f9dc0ffad13e79bff95 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/glossary/e/#event "A happening of consequence to an entity. The term encompasses both transactions and other events affecting an entity.") 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. ##### [718-740-25-4](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:0043ff0f8f4f24306b5ebe8bcfef5791d8e27ca5408f4cf2009257791c827ba0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [718-740-25-5](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:8ada9e0f3e4a091e3301baaa05db517f7b1410051d308d8034e44d88b066dba5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [718-740-25-6](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:bdb6ed050eaa33169b31071325acfc854af5be852b75eaf906a67b81314508be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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 employee stock ownership plan-related income tax deduction (prescribed by income tax rules and regulations) for that period. Differences result in either of the following situations: 1. a The [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "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.") of shares committed to be released differs from the cost of those shares to the employee stock ownership plan. 2. b The timing of expense recognition is different for income tax and financial reporting purposes. Such differences shall be reported in accordance with the requirements of Subtopic 740-10. ##### [718-740-25-7](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:bd32e5e74860d78854e75003f0a999cc391c7509ca010344786f7730e113279a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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 for financial reporting purposes creates a temporary difference under the requirements of Subtopic 740-10. ##### [718-740-25-8](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:9aaafefb4ce239880d3bd4197de1e01995cdfb7613fdeec835a70e15d602d667 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section 718-40-55 for several illustrations of the accounting for employee stock ownership plans, including the related income tax accounting. ##### [718-740-25-9](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:a78deff06ab31765d660f8eb87183a591ac05f9ac34871fa61c400ead632e3c0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-09](https://asc.understandingaccounting.org/updates/asu-2016-09/). ##### [718-740-25-10](https://asc.understandingaccounting.org/asc/718/740/#718-740-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:06:33.294Z to 2026-09-10T01:06:33.294Z Record version: sha256:7098517d15b478555e07cda1f50e49a88d25e8bd7390809bc667c86977057b35 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-09](https://asc.understandingaccounting.org/updates/asu-2016-09/).