This Section is an integral part of the requirements of this Subtopic. This Section provides implementation guidance that addresses the application of requirements to specific aspects of income tax accounting for quasi-reorganizations.
For example, assume an entity charged losses directly to contributed capital at the date of a quasi-reorganization. At that date, the deferred tax asset for the entity's deductible temporary differences and carryforwards was offset by a valuation allowance. Part of those deductible temporary differences and carryforwards related to losses that were included in determining income in prior years. The remainder were attributable to losses that were charged directly to contributed capital as a result of the quasi-reorganization. When recognized (by reducing or eliminating the valuation allowance) after the date of the quasi-reorganization, the tax benefit of such deductible temporary differences and carryforwards would be reported as a direct addition to contributed capital under the guidance in the preceding paragraph.
A charge to income should be recorded, however, if after a quasi-reorganization an entity concludes that due to a change in circumstances a valuation allowance should be recognized or increased to reduce the amount of tax benefits that were recognized at the time of the quasi-reorganization.
The accounting for any subsequently recognized tax benefit of deductible temporary differences and carryforwards that existed at the date of a quasi-reorganization does not change based on whether gains were credited directly to contributed capital or losses were charged directly to contributed capital.