# ASC 740-10-05: Income Taxes — Overall — 05 Overview and Background Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/740/10/#05-overview-and-background) 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): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:3b8240374965263bd08f5603e966be42ff80453a7ed4683fd01d5f28c3c935d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-10-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/740/10/#05-overview-and-background) SEC content: no ##### [740-10-05-1](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:a9fc5d5bcafe9787e9d07dd5813ca78e71ace1c363ba2043fd35e7b4bd8207b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The [Income Taxes](https://asc.understandingaccounting.org/glossary/i/#income-taxes "Domestic and foreign federal (national), state, and local (including franchise) taxes based on income.") Topic addresses financial accounting and reporting for the effects of income taxes that result from an entity's activities during the current and preceding years. Specifically, this Topic establishes standards of financial accounting and reporting for income taxes that are currently payable and for the [tax consequences](https://asc.understandingaccounting.org/glossary/t/#tax-consequences "The effects on income taxes—current or deferred—of an event.") of all of the following: 1. a Revenues, expenses, gains, or losses that are included in [taxable income](https://asc.understandingaccounting.org/glossary/t/#taxable-income "The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.") of an earlier or later year than the year in which they are recognized in financial income 2. b Other events that create differences between the tax bases of assets and liabilities and their amounts for financial reporting 3. c Operating loss or tax credit [carrybacks](https://asc.understandingaccounting.org/glossary/c/#carrybacks "Deductions or credits that cannot be utilized on the tax return during a year that may be carried back to reduce taxable income or taxes payable in a prior year. An operating loss carryback is an excess of tax deductions over gross income in a year; a tax credit carryback is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried back and the length of the carryback period.") for refunds of taxes paid in prior years and [carryforwards](https://asc.understandingaccounting.org/glossary/c/#carryforwards "Deductions or credits that cannot be utilized on the tax return during a year that may be carried forward to reduce taxable income or taxes payable in a future year. An operating loss carryforward is an excess of tax deductions over gross income in a year; a tax credit carryforward is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried forward and the length of the carryforward period. The terms carryforward, operating loss carryforward, and tax credit carryforward refer to the amounts of those items, if any, reported in the tax return for the current year.") to reduce taxes payable in future years. ##### [740-10-05-2](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:791fc59648b6069967c94e1fc1535d9f92459b48011446eff0d86b6599faf00d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Topic includes the following Subtopics: 1. a Overall 2. b Intraperiod Tax Allocation 3. c Other Considerations or Special Areas 4. d Interim Reporting. ##### [740-10-05-3](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:7c414dc71d3225909bc063f47847adde25923fb73b5f40cc51890c382eb0b0f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Overall Subtopic provides the majority of the accounting and reporting guidance related to income taxes. The other Subtopics in this Topic provide more detailed guidance on narrower elements of accounting and reporting for income taxes. ##### [740-10-05-4](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:766d4d88a59087bd11e082e496b59866585ce8a94ff4338d1597b4780c77fc89 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Other Topics, including industry-specific Topics, may also have Income Taxes Subtopics that address the Topic-specific requirements for income taxes. Guidance in those Subtopics is intended to be incremental to the guidance otherwise established in the Income Taxes Topic. Topics with incremental Income Taxes Subtopics are: 1. a Investments—Equity Method and Joint Ventures, Subtopic 323-740 2. b Compensation—Stock Compensation, Subtopic 718-740 3. c Business Combinations, Subtopic 805-740 4. d Foreign Currency Matters, Subtopic 830-740 5. e Reorganizations, Subtopic 852-740 6. f Entertainment—Casinos, Subtopic 924-740 7. g Extractive Activities—Oil and Gas, Subtopic 932-740 8. h Financial Services—Depository and Lending, Subtopic 942-740 9. i Financial Services—Insurance, Subtopic 944-740 10. j Health Care Entities, Subtopic 954-740 11. k Real Estate—Common Interest Realty Associations, Subtopic 972-740 12. l Regulated Operations, Subtopic 980-740 13. m [Subparagraph superseded by Accounting Standards Update No. 2017-15](https://asc.understandingaccounting.org/updates/asu-2017-15/). ##### [740-10-05-5](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:5d07a6d99f568abee99bdecb219d141aa5c5d468af148e68f62546c2e7ccf9be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There are two basic principles related to accounting for income taxes, each of which considers uncertainty through the application of recognition and measurement criteria: 1. a To recognize the estimated taxes payable or refundable on tax returns for the current year as a tax liability or asset 2. b To recognize a [deferred tax liability](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.") or [asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") for the estimated future tax effects attributable to [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.") and carryforwards. ##### [740-10-05-6](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:95c249782428b79658d780b147e1d05f958c54671ac93e148313b7a792302806 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance for recognizing and measuring tax positions taken or expected to be taken in a tax return that directly or indirectly affect amounts reported in financial statements. This Subtopic also provides accounting guidance for the related income tax effects of individual tax positions that do not meet the recognition thresholds required in order for any part of the benefit of that [tax position](https://asc.understandingaccounting.org/glossary/t/#tax-position "A position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. A tax position can result in a permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable to future years, or a change in the expected realizability of deferred tax assets. The term tax position also encompasses, but is not limited to: A decision not to file a tax return An allocation or a shift of income between jurisdictions The characterization of income or a decision to exclude reporting taxable income in a tax return A decision to classify a transaction, entity, or other position in a tax return as tax exempt An entity's status, including its status as a pass-through entity or a tax-exempt not-for-profit entity.") to be recognized in an entity's financial statements. Under this Subtopic, a tax position is first evaluated for recognition based on its technical merits. Tax positions that meet a recognition criterion are then measured to determine an amount to recognize in the financial statements. That measurement incorporates information about potential settlements with taxing authorities. ##### [740-10-05-7](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:3a62ce21e79162a2e0e170c24376cb07a7c4db95d2d935908cd05958a2d64108 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A temporary difference refers to a difference between the tax basis of an asset or liability, determined based on recognition and measurement requirements 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. Deferred tax assets and liabilities represent the future effects on income taxes that result from temporary differences and carryforwards that exist at the end of a period. Deferred tax assets and liabilities are measured using enacted tax rates and provisions of the enacted tax law and are not discounted to reflect the time-value of money. ##### [740-10-05-8](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:213f4787c85dbcb89efa5848e33cf349ab63c38d12cb2107a75e8bdc786480b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As indicated in paragraph [740-10-25-23](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-23), temporary differences that will result in taxable amounts in future years when the related asset or liability is recovered or settled are often referred to as taxable temporary differences. Likewise, temporary differences that will result in deductible amounts in future years are often referred to as deductible temporary differences. Business combinations and [joint venture](https://asc.understandingaccounting.org/glossary/j/#joint-venture "An entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a joint venture frequently is to share risks and rewards in developing a new market, product, or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a joint venture. The ownership of a joint venture seldom changes, and its equity interests usually are not traded publicly. A minority public ownership, however, does not preclude an entity from being a joint venture. As distinguished from a corporate joint venture, a joint venture is not limited to corporate entities.") formations may give rise to both taxable and deductible temporary differences. ##### [740-10-05-9](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:e85f739030392dc421de68f09f6c7590b4b195103162c8248e63502b15c30052 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As indicated in paragraph [740-10-25-30](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-30), certain basis differences may not result in taxable or deductible amounts in future years when the related asset or liability for financial reporting is recovered or settled and, therefore, may not be temporary differences for which a deferred tax liability or asset is recognized. ##### [740-10-05-10](https://asc.understandingaccounting.org/asc/740/10/#740-10-05-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:15.857Z to 2026-09-10T01:16:15.857Z Record version: sha256:e91ba87d300f8b5a3e48436e45ab97bc38d5898c45793aafd982282b3f83d54f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As indicated in paragraph [740-10-25-24](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-24), some temporary differences are deferred taxable income or tax deductions and have balances only on the income tax balance sheet and therefore cannot be identified with a particular asset or liability for financial reporting. In such instances, there is no related, identifiable asset or liability for financial reporting, but there is a temporary difference that results from an [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.") that has been recognized in the financial statements and, based on provisions in the tax law, the temporary difference will result in taxable or deductible amounts in future years.