# ASC 740-805-25: Income Taxes — Business Combinations — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/740/805/#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): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:a4f2327ee309ca5ac6ae17cdc493f40f2d9cab42cbea9d820e183a045afa3bd7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/740/805/#25-recognition) SEC content: no ##### [740-805-25-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:e2b84e4249380682298834d816e0a5f3942f1bb9f4da8e0fdc2af4be70084558 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section provides general guidance on the recognition of deferred tax assets and liabilities in connection with a [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity."). It also addresses certain business-combination-specific matters relating to [goodwill](https://asc.understandingaccounting.org/glossary/g/#goodwill "An asset representing the future economic benefits arising from other assets acquired in a business combination, acquired in an acquisition by a not-for-profit entity, or recognized by a joint venture upon formation that are not individually identified and separately recognized. For ease of reference, this term also includes the immediate charge recognized by not-for-profit entities in accordance with paragraph 958-805-25-29."), replacement awards, and the allocation of consolidated tax expense after an acquisition. ##### [740-805-25-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:3333cf322e92f1ae1f13723c94b70920009ec21e6e88ae9d6738dae00d90ecb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An [acquirer](https://asc.understandingaccounting.org/glossary/a/#acquirer "The entity that obtains control of the acquiree. However, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer. (P) December 16, 2026; (N) December 16, 2026805-10-65-5The entity that obtains control of the acquiree.See paragraphs 805-10-25-4805-10-25-5 for guidance on determining the acquirer.") shall recognize a [deferred tax 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.") or [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.") arising from the assets acquired and liabilities assumed in a business combination and shall account for the potential tax effects of [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."), [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."), and any income tax uncertainties of an [acquiree](https://asc.understandingaccounting.org/glossary/a/#acquiree "The business or businesses that the acquirer obtains control of in a business combination. This term also includes a nonprofit activity or business that a not-for-profit acquirer obtains control of in an acquisition by a not-for-profit entity.") that exist at the [acquisition date](https://asc.understandingaccounting.org/glossary/a/#acquisition-date "The date on which the acquirer obtains control of the acquiree."), or that arise as a result of the acquisition, in accordance with the guidance in Subtopic 740-10 together with the incremental guidance provided in this Subtopic. ##### [740-805-25-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:26505b13969ee87e1fe457502a4d4bd54c6e290f07600d529d89b780bb5f99b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As of the acquisition date, a deferred tax liability or asset shall be recognized for an acquired entity's taxable or [deductible temporary differences](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.") or operating loss or tax credit carryforwards except for differences relating to the portion of goodwill for which amortization is not deductible for tax purposes, leveraged leases, and the specific acquired temporary differences identified in paragraph [740-10-25-3(a)](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3). Taxable or deductible temporary differences arise from differences between the tax bases and the recognized values of assets acquired and liabilities assumed in a business combination. Example 1 (see paragraph [805-740-55-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-2)) illustrates this guidance. An acquirer shall assess the need for a [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") as of the acquisition date for an acquired entity's deferred tax asset in accordance with Subtopic 740-10. ##### [740-805-25-4](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:8e12443e860781191f040ef2deb0a2bf379cba1f0d94bf962146e45de2503be4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Guidance on tax-related matters related to the portion of goodwill for which amortization is not deductible for tax purposes is in paragraphs [805-740-25-8 through 25-9](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-8) ; guidance on accounting for the acquisition of [leveraged leases](https://asc.understandingaccounting.org/glossary/l/#leveraged-lease "From the perspective of a lessor, a lease that was classified as a leveraged lease in accordance with the leases guidance in effect before the effective date and for which the commencement date is before the effective date.") in a business combination is in Subtopic 842-50; and guidance on the specific acquired temporary differences identified in paragraph [740-10-25-3(a)](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3) is referred to in that paragraph. ##### [740-805-25-5](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:81509c08d80a72a059609fba30e0b1146fbcdb742d37a3fd0fb8cd7601d9280d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The tax bases used in the calculation of deferred tax assets and liabilities as well as amounts due to or receivable from taxing authorities related to prior [tax positions](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.") at the date of a business combination shall be calculated in accordance with Subtopic 740-10. ##### [740-805-25-6](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:2f1fe233733cbf41f37182490548375a5d7b510a59b32dee3f2dbacaa9687120 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a taxable business combination, the consideration paid is assigned to the assets acquired and liabilities assumed for financial reporting and tax purposes. However, the amounts recognized for particular assets and liabilities may differ for financial reporting and tax purposes. As required by paragraph [805-740-25-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-3), deferred tax liabilities and assets are recognized for the [deferred tax consequences](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-consequences "The future effects on income taxes as measured by the applicable enacted tax rate and provisions of the enacted tax law resulting from temporary differences and carryforwards at the end of the current year.") of those temporary differences. For example, a portion of the amount of goodwill for financial reporting may be allocated to some other asset for tax purposes, and amortization of that other asset may be deductible for tax purposes. If a valuation allowance is recognized for that deferred tax asset at the acquisition date, recognized benefits for those tax deductions after the acquisition date shall be applied in accordance with paragraph [805-740-45-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-2). ##### [740-805-25-7](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:94491a920cb6236cce4acd17e33b697bf47e865929779bd27ed724ff8752b3af Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Examples 1 through 3 (paragraphs [805-740-55-2 through 55-8](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-2) ) for illustrations of the recognition of deferred tax assets and related valuation allowances at the date of a nontaxable business combination. #### Goodwill ##### [740-805-25-8](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:6352076ab432af6d0ff5a3a0c65349e15fdc642597bf223adaf1c0e14a8259c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Guidance on the financial accounting for goodwill is provided in Subtopic 350-20. For tax purposes, amortization of goodwill is deductible in some tax jurisdictions. In those tax jurisdictions, the reported amount of goodwill and the tax basis of goodwill are each separated into two components as of the acquisition date for purposes of deferred tax calculations. The first component of each equals the lesser of goodwill for financial reporting or tax-deductible goodwill. The second component of each equals the remainder of each, that is, the remainder, if any, of goodwill for financial reporting or the remainder, if any, of tax-deductible goodwill. ##### [740-805-25-9](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:2aee72672a40c15759be8b08c061f6174cea0ed4fdd333b06b2e1d716207682e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Any difference that arises between the book and tax basis of that first component of goodwill in future years is a temporary difference for which a deferred tax liability or asset is recognized based on the requirements of Subtopic 740-10. If that second component is an excess of tax-deductible goodwill over the reported amount of goodwill, the tax benefit for that excess is a temporary difference for which a deferred tax asset is recognized based on the requirements of that Subtopic (see Example 4 \[paragraph [805-740-55-9](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-9)\]). However, if that second component is an excess of goodwill for financial reporting over the tax-deductible amount of goodwill, no deferred taxes are recognized either at the acquisition date or in future years. #### Replacement Awards Classified as Equity ##### [740-805-25-10](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:2bee870541ca7234301cb412ab2fccfdae7bed99e5a264d6aa38b5d867b46da2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-30-30-9](https://asc.understandingaccounting.org/asc/805/30/#805-30-30-9) identifies the types of awards that are referred to as replacement awards in the Business Combinations Topic. For a replacement award classified as equity that ordinarily would result in postcombination tax deductions under current tax law, an acquirer shall recognize a deferred tax asset for the deductible temporary difference that relates to the portion of 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.")\-based measure attributed to a precombination exchange of goods or services and therefore included in consideration transferred in the business combination. ##### [740-805-25-11](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:23fad98db6a8fbd764b02692f77457e01406be4c8dd4452f025ca62e73db6227 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a replacement award classified as equity that ordinarily would not result in tax deductions under current tax law, an acquirer shall recognize no deferred tax asset for the portion of the fair-value-based measure attributed to precombination vesting and thus included in consideration transferred in the business combination. 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."), such as an employee's disqualifying disposition of shares under a tax law, may 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. #### Allocation of Consolidated Tax Expense to the Acquired Entity after an Acquisition ##### [740-805-25-12](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:2c31e1542a3c597d7a76b3fc384dcff0acbeb5a3403c2abc29ebf23704a2d77b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-30-27](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-27) provides general guidance on the allocation of consolidated tax expense to the separate financial statements of members of a consolidated group. Under certain conditions, paragraphs [805-50-25-4 through 25-9](https://asc.understandingaccounting.org/asc/805/50/#805-50-25-4) permit an acquired entity to retain its preacquisition historical basis in separately issued financial statements after an acquisition. ##### [740-805-25-13](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:df3969a197b1ecb138f8c91fada7e37c8546119afb598aee96601134f5f7ecec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there is a continuation of the historical basis for financial reporting, for example, when pushdown accounting is not applied, at the same time as there is a tax basis step-up, the tax benefit from the tax basis step-up shall be credited to the acquired entity's additional paid-in capital consistent with paragraph [740-20-45-11(g)](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-11). 1. a [Subparagraph superseded by Accounting Standards Update No. 2018-09](https://asc.understandingaccounting.org/updates/asu-2018-09/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2018-09](https://asc.understandingaccounting.org/updates/asu-2018-09/). 3. c [Subparagraph superseded by Accounting Standards Update No. 2018-09](https://asc.understandingaccounting.org/updates/asu-2018-09/). ##### [740-805-25-14](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:e334c0dd2ff001381cb0d0e155cfd1d0dd375314e4813e811a7d50ee0bc4e4bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-50-17](https://asc.understandingaccounting.org/asc/740/10/#740-10-50-17) specifies the disclosure requirements for separately issued financial statements of an entity that is a member of a group that files a consolidated tax return.