Income taxes

ASC 220-10 governs how an entity presents comprehensive income — net income plus other comprehensive income (OCI) — in a full set of general-purpose financial statements. Comprehensive income must be reported either in a single continuous statement or in two separate but consecutive statements (net income first, then OCI beginning with net income), with totals for net income, OCI, and comprehensive income (220-10-45-1 through 45-1B). The Subtopic addresses only presentation and disclosure; it does not specify when to recognize or how to measure the items making up comprehensive income (220-10-25-1; 220-10-30-1).

ASC 220-20 governs how an entity presents and discloses material events or transactions that are unusual in nature, infrequent in occurrence, or both. Such items must be reported as a separate component of income from continuing operations, with their nature and financial effects either shown on the face of the income statement or disclosed in the notes (220-20-45-1; 220-20-50-1). They may not be presented net of tax on the face of the income statement, and their per-share effects may not be shown there.

ASC 270-10 governs how GAAP is applied to interim financial information (monthly, quarterly, or other periods shorter than a year) and what must be disclosed. Its core rule is the "integral part" view: each interim period is viewed primarily as an integral part of an annual period, so results generally follow the accounting principles used in the latest annual financial statements, with specified modifications (e.g., inventory, LIFO liquidations, cost allocations, estimated annual effective tax rate). It also sets minimum disclosure requirements for publicly traded companies reporting summarized interim data, which ASU 2025-11 replaces with disclosure requirements keyed to interim financial statements and notes prepared in accordance with GAAP, including condensed statements.

This subtopic governs how income tax expense (or benefit) is computed and presented in interim financial statements. The core rule is a hybrid model: tax on "ordinary income (or loss)" is measured by applying a best-estimate annual effective tax rate to year-to-date ordinary income, while items excluded from that rate — significant unusual or infrequently occurring items, discontinued operations, changes in tax law or rates on deferred taxes, changes in beginning-of-year valuation allowances, and certain share-based payment tax effects — are computed individually and recognized discretely in the interim period in which they occur (740-270-25-2; 740-270-30-11 through 30-13). Recognition of interim tax benefits from losses is limited to amounts expected to be realized during the year or recognizable as a deferred tax asset at year-end (740-270-25-9).

ASC 323-30 extends equity method concepts to investments in unincorporated entities—partnerships, unincorporated joint ventures (undivided interests in ventures), and limited liability companies—that are outside the literal scope of Subtopic 323-10 (which addresses common stock of corporations). Investors generally apply the equity method by analogy when they can exercise significant influence over the investee (323-30-25-1), including the intra-entity profit elimination rules of 323-10-35-7. An LLC that maintains a specific ownership account for each investor is treated like a limited partnership interest in deciding between Topic 321 and the equity method (323-30-35-3).

ASC 323-740 provides standalone guidance on the proportional amortization method for equity investments in flow-through limited liability entities made primarily to receive income tax credits and other income tax benefits (e.g., LIHTC and other tax credit programs). If the conditions in 323-740-25-1 are met and the method is elected on a tax-credit-program-by-tax-credit-program basis (323-740-25-4), the investor amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits allocated to it, and reports that amortization within income tax expense (benefit) (323-740-35-2; 323-740-45-2).

ASC 718-740 governs the income tax accounting consequences of share-based payment arrangements, including employee stock ownership plans. Cumulative compensation cost recognized for awards that ordinarily generate a future tax deduction creates a deductible temporary difference and a deferred tax asset (718-740-25-2, 25-4), measured on book compensation cost rather than the shares' current fair value. When the actual tax deduction is finally determined (typically at exercise, expiration, or vesting), any difference between it and cumulative book compensation cost is recognized as income tax expense or benefit in the income statement (718-740-35-2).

ASC 740-10 is the Overall subtopic for income taxes and contains the core asset-and-liability model: recognize (1) current taxes payable or refundable for the year and (2) deferred tax assets and liabilities for the future tax consequences of temporary differences and operating loss/tax credit carryforwards (740-10-10-1; 740-10-25-2). Deferred taxes are measured using enacted tax rates expected to apply when the item reverses, are not discounted, and deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all will not be realized (740-10-30-5, 740-10-30-8). It also houses the two-step uncertain tax position model — more-likely-than-not recognition on technical merits, then measurement at the largest benefit greater than 50 percent likely of being realized on settlement (740-10-25-6; 740-10-30-7).

ASC 740-20 governs intraperiod tax allocation: after total income tax expense or benefit for the period is computed under ASC 740-10, this Subtopic allocates that total among continuing operations, discontinued operations, other comprehensive income, and items charged or credited directly to shareholders' equity (740-20-45-2). Continuing operations is computed first ("with-and-without"), considering only items in continuing operations (740-20-45-7), and the residual is assigned to the single other item, or apportioned among multiple other items in proportion to their individual effects (740-20-45-12 and 45-14).

ASC 740-30 governs the limited exceptions to comprehensive deferred tax recognition for temporary differences (outside basis differences) arising from investments in subsidiaries and corporate joint ventures, principally undistributed earnings. The starting presumption is that all undistributed earnings of a subsidiary will be transferred to the parent and thus create a taxable temporary difference (740-30-25-3), but that presumption can be overcome by the "indefinite reversal criteria" for foreign subsidiaries/foreign corporate joint ventures essentially permanent in duration and for pre-December 16, 1992 domestic undistributed earnings (740-30-25-17 and 25-18). Deferred tax assets for excess outside tax basis are recognized only if it is apparent the difference will reverse in the foreseeable future (740-30-25-9).

ASC 740-805 (codified as 805-740) gives the income tax rules that apply when an acquirer accounts for a business combination or a not-for-profit acquisition. It requires recognizing deferred tax assets and liabilities (and valuation allowances) at the acquisition date for the differences between the tax bases and the recognized values of assets acquired and liabilities assumed, measured under Subtopic 740-10 with no discounting. It also specifies exceptions (nondeductible goodwill, leveraged leases) and how post-acquisition changes in valuation allowances and acquired tax positions are recognized — through goodwill only within the measurement period, otherwise in income tax expense.

This subtopic governs deferred tax accounting for basis differences that arise in foreign operations when tax or financial reporting bases are restated — because of a change in functional currency, general price-level (inflation) indexing, or a functional currency that differs from the local currency. Its core rules: when an economy ceases to be highly inflationary and new functional currency bases are established for nonmonetary items, the resulting differences from local currency tax bases are temporary differences requiring deferred taxes recognized in other comprehensive income as an adjustment to cumulative translation adjustments (830-740-45-2); by contrast, no deferred taxes are recognized for nonmonetary assets remeasured at historical exchange rates whose differences arise from exchange rate changes or tax indexing (740-10-25-3(f)).

ASC 740-852 gives incremental income tax guidance for entities emerging from Chapter 11 that qualify for fresh-start reporting and for entities that effect a quasi-reorganization. Under fresh-start reporting, deferred taxes follow ordinary GAAP, and tax benefits of preconfirmation NOL carryforwards and deductible temporary differences recognized later (by releasing the valuation allowance) reduce income tax expense. After a quasi-reorganization, by contrast, subsequently recognized tax benefits of deductible temporary differences and carryforwards that existed at the quasi-reorganization date are credited directly to contributed capital, not income.

This Subtopic applies Topic 740's deferred tax model to casino entities, identifying the common situations where casino book accounting diverges from income tax reporting. Under 740-924-25-1, deferred income taxes arise from three recurring casino differences: casino receivables recognized for books but taxed when collected, costs deferred for books but expensed for tax, and progressive slot jackpots accrued from meter readings for books but deducted for tax when paid. It provides no separate scope, following the scope of Subtopic 924-10 (740-924-15-1).

This subtopic covers income tax accounting peculiar to oil- and gas-producing activities. Its core rules: the tax benefit of statutory depletion in excess of cost depletion is recognized only in the period the excess is deducted on the tax return (no deferred tax asset before then), and the likelihood that future statutory depletion will reduce or eliminate future taxable income must be weighed in the more-likely-than-not realizability assessment for deferred tax assets. It also notes that costs such as intangible drilling and development costs and geological and geophysical costs are deducted for tax purposes in periods different from when they are expensed or amortized for book purposes, creating temporary differences.

This subtopic applies Topic 740 to stock and mutual savings and loan associations and mutual savings banks, whose tax bad-debt reserve deductions differ from book bad-debt experience. Its core rule is an exception to comprehensive deferred tax recognition: no deferred tax liability is recognized for the tax bad-debt reserve that arose in tax years beginning before December 31, 1987 (the base-year amount), while a deferred tax liability must be recognized for reserve amounts in excess of the base year. Related valuation allowance, measurement, and disclosure requirements are specified.

This Subtopic applies Topic 740's income tax model to insurance entities. Deferred tax liabilities and assets are recognized for temporary differences generally, but a life insurance entity does not provide deferred taxes on taxable temporary differences related to policyholders' surplus arising in fiscal years beginning on or before December 15, 1992 — unless a known or expected reduction in that surplus makes tax payment likely, in which case the attributable tax is accrued currently. Disclosure of unrecognized deferred tax liabilities under the Topic 740 exceptions is required.

This subtopic gives investment companies the income tax accounting and reporting rules unique to their industry. Its core rules are narrow: any provision for deferred income taxes on unrealized appreciation must be charged against the unrealized gains account (946-740-35-1) and disclosed as such in the statement of operations (946-740-50-1). Implementation guidance addresses regulated investment companies' post-October capital and foreign currency loss deferrals and how they factor into deferred tax disclosures.

This subtopic is a very short industry-specific overlay to ASC 740 that applies only to not-for-profit, business-oriented health care entities. Its single substantive rule is a disclosure requirement: a tax-exempt health care entity must disclose its tax-exempt status (740-954-50-1). It adds no recognition or measurement guidance beyond the general income tax model.

This Subtopic applies Topic 740's income tax guidance to common interest realty associations (CIRAs), such as homeowners' and condominium associations. Because a CIRA's income taxes generally do not relate to an excess of revenues over expenses, the tax provision may be presented among other operating expenses in the statement of revenues and expenses rather than as a separate below-the-line item. It also imposes CIRA-specific note disclosures about filing status, tax liability, and expiring credits.

This subtopic applies ASC 740 to entities whose rates are regulated and that meet the criteria in 980-10-15-2. It prohibits net-of-tax accounting, requires a deferred tax liability for tax benefits flowed through to customers and for the equity component of the allowance for funds used during construction (AFUDC), and requires deferred taxes to be adjusted for enacted changes in tax law or rates. When it is probable that a regulator will allow recovery from (or require refund to) customers of those future tax amounts, the entity recognizes a separate regulatory asset or liability, which is itself a temporary difference generating additional deferred tax.

ASC 740-995 formerly provided industry-specific income tax guidance for U.S. steamship entities, which had been permitted to leave unrecognized deferred taxes on statutory reserve deposits that arose in fiscal years beginning before December 15, 1992. Accounting Standards Update No. 2017-15 superseded every paragraph in the subtopic (05-1, 15-1, 25-1, 25-2, 50-1, 50-2), so no guidance remains. Steamship entities now account for income taxes under the general requirements of Topic 740.

ASC 842-50 preserves the legacy leveraged lease accounting model, but only for leases that existed at the ASC 842 transition date and meet the criteria in 842-10-65-1(z) — no new leveraged leases may be created. A lessor records a single net investment consisting of rentals receivable (net of nonrecourse debt service), investment-tax-credit receivable, estimated residual value, and unearned/deferred income (842-50-25-1; 842-50-30-1), and recognizes income only in years when the net investment (less related deferred taxes) is positive, using the rate of return that distributes total net income to those years (842-50-35-2). Important assumptions, including residual value and the projected timing of income tax cash flows, must be reviewed at least annually, with any change triggering recalculation from lease inception and immediate gain or loss recognition (842-50-35-6 through 35-8).

ASC 974-10 is the Overall subtopic for Real Estate—Real Estate Investment Trusts, describing the structure and scope of the REIT Topic and pointing to its subtopics (equity method/joint ventures, other expenses, consolidation, interest, and leases). It provides only incremental industry-specific guidance: REITs must also follow all otherwise applicable GAAP. It applies to all REITs, whether or not they have elected the federal tax treatment that avoids corporate income tax by distributing at least 90 percent of taxable income to shareholders.