# ASC 740-980-25: Income Taxes — Regulated Operations — 25 Recognition

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/740/980/#25-recognition)

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## ASC 740-980-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/740/980/#25-recognition)

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#### Income Taxes Applicable to Regulated Entities

##### [740-980-25-1](https://asc.understandingaccounting.org/asc/740/980/#740-980-25-1)

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For regulated entities that meet the criteria for application of paragraph [980-10-15-2](https://asc.understandingaccounting.org/asc/980/10/#980-10-15-2), this Subtopic specifically:

1.  a
    
    Prohibits net-of-tax accounting and reporting
    
2.  b
    
    Requires recognition of a deferred tax liability for tax benefits that are flowed through to customers when temporary differences originate and for the equity component of the [allowance for funds used during construction](https://asc.understandingaccounting.org/glossary/a/#allowance-for-funds-used-during-construction "The cost of financing construction as financed partially by borrowings and partially by equity, capitalized as part of the cost of plant and equipment pursuant to requirements of the regulator.")
    
3.  c
    
    Requires adjustment of a deferred tax liability or asset for an enacted change in tax laws or rates.

##### [740-980-25-2](https://asc.understandingaccounting.org/asc/740/980/#740-980-25-2)

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If, as a result of an action by a regulator, it is probable that the future increase or decrease in taxes payable for (b) and (c) in the preceding paragraph will be recovered from or returned to customers through future rates, an asset or liability shall be recognized for that probable future revenue or reduction in future revenue pursuant to paragraphs [980-340-25-1](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-1) and [980-405-25-1](https://asc.understandingaccounting.org/asc/405/980/#405-980-25-1). That asset or liability also shall be a temporary difference for which a deferred tax liability or asset shall be recognized.

##### [740-980-25-3](https://asc.understandingaccounting.org/asc/740/980/#740-980-25-3)

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Example 1 (see paragraph [980-740-55-8](https://asc.understandingaccounting.org/asc/740/980/#740-980-55-8)) illustrates recognition of an asset for the probable revenue to recover future income taxes.

##### [740-980-25-4](https://asc.understandingaccounting.org/asc/740/980/#740-980-25-4)

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Example 2 (see paragraph [980-740-55-13](https://asc.understandingaccounting.org/asc/740/980/#740-980-55-13)) illustrates adjustment of a deferred tax liability when the liability represents amounts already collected from customers.