This Section provides guidance on statement of financial position, income statement
and statement of shareholder equity classification, and presentation matters applicable to all the following:
- a
Statement of financial position classification of income tax accounts
- b
Income statement presentation of certain measurement changes to income tax accounts
- c
Income statement classification of interest and penalties
- d
Presentation matters related to investment tax credits under the deferral method.
- e
Statement of shareholder equity reclassification of certain income tax effects from accumulated other comprehensive income.
See Subtopic
740-20 for guidance on the intraperiod allocation of total income tax expense (or benefit).
Topic
210 provides general guidance for classification of accounts in statements of financial position. The following guidance addresses classification matters applicable to income tax accounts and is incremental to the general guidance.
In a classified statement of financial position, an entity shall classify deferred tax liabilities and assets as noncurrent amounts.
To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and shall be made presuming disallowance of the tax position at the reporting date.
An unrecognized tax benefit presented as a liability shall not be classified as a deferred tax liability unless it arises from a taxable temporary difference. Paragraph
740-10-25-17 explains how the recognition and measurement of a
tax position may affect the calculation of a temporary difference.
The following guidance addresses the presentation on the income statement of the effect of changes in deferred tax accounts caused by the following types of changes:
- a
Changes in tax laws or rates
- b
Changes in the tax status of an entity
- c
Changes that impact the valuation allowance for deferred tax assets
- d
Changes related to assets acquired outside of a business combination.
When deferred tax accounts are adjusted as required by paragraph
740-10-35-4 for the effect of a change in tax laws or rates,
the effect shall be included in income from continuing operations for the period that includes the enactment date. Paragraph
740-10-25-48 provides the recognition guidance when a tax law retroactively changes tax rates.
In such cases, the cumulative tax effect is included in income from continuing operations. Paragraph
740-10-30-26 provides the measurement guidance for a change in tax rates on items not included in income from continuing operations that arose during the current fiscal year and prior to the date of enactment.
In such cases, the tax effect of a retroactive change in enacted tax rates on current or deferred tax assets and liabilities related to those items is included in income from continuing operations in the period of enactment. When deferred tax accounts are recognized or derecognized as required by paragraphs
740-10-25-32 and
740-10-40-6 due to a change in tax status,
the effect of recognizing or derecognizing the deferred tax liability or asset shall be included in income from continuing operations. Changes in valuation allowances due to changed expectations about the realization of deferred tax assets caused by transactions among or with shareholders shall be included in the income statement. A write-off of a preexisting deferred tax asset that an entity can no longer realize as a result of a transaction among or with its shareholders shall similarly be charged to the income statement. The same net effect results from eliminating a deferred tax asset and increasing a valuation allowance to 100 percent of the amount of the related deferred tax asset.
Paragraph
740-10-25-51 addresses the accounting when an asset is acquired outside of a business combination and the tax basis of the asset differs from the amount paid and identifies related examples.
In the event that the accounting results in the recognition of a deferred tax asset and if, subsequent to the acquisition, it becomes more likely than not that some or all of the acquired deferred tax asset will not be realized, the effect of such adjustment shall be recognized in continuing operations as part of income tax expense. A proportionate share of any remaining unamortized deferred credit balance arising from the accounting required in that paragraph shall be recognized as an offset to income tax expense. The deferred credit shall not be classified as part of deferred tax liabilities or as an offset to deferred tax assets. Income tax uncertainties that exist at the date of acquisition of the asset shall be accounted for in accordance with this Subtopic.
Paragraph
740-10-25-46 describes two acceptable methods for recognizing the benefit of investment tax credits. The following guidance addresses presentation matters related to one of those methods, the deferral method.
The reflection of the allowable credit as a reduction in the net amount at which the acquired property is stated (either directly or by inclusion in an offsetting account) may be preferable in many cases. However, it is equally appropriate to treat the credit as deferred income, provided it is amortized over the productive life of the acquired property.