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									Statement of Financial Accounting Standards No. 109

Accounting for Income Taxes

CONTENTS

                                                                                                                                                                                        Paragraph
                                                                                                                                                                                         Numbers

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1− 2
Standards of Financial Accounting and Reporting:
    Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3− 5
    Objectives and Basic Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             6− 15
        Temporary Differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10− 15
    Recognition and Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16− 34
        Annual Computation of Deferred Tax Liabilities and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17− 25
        A Change in the Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                            26
        An Enacted Change in Tax Laws or Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                  27
        A Change in the Tax Status of an Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                28
        Regulated Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        29
        Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                            30
        Opinion 23 and U.S. Steamship Enterprise Temporary Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . 31− 34
    Intraperiod Tax Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35− 39
        Certain Quasi Reorganizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                   39
    Separate Financial Statements of a Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                40
    Financial Statement Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41− 42
    Financial Statement Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43− 49
    Effective Date and Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50− 59
        Prior Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53− 56
        Assets of Regulated Enterprises Reported on a Net-of-Tax of After-Tax Basis. . . . . . . . . . . . . . . . 57− 59
Appendix A: Basis for Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60−222
Appendix B: Application of the Standards to Specific Aspects of Accounting for Income Taxes . . . 223−276
Appendix C: Background Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277−285
Appendix D: Amendments to Existing Pronouncements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286−288
Appendix E: Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    289



INTRODUCTION                                                                                             seded APB Opinion No. 11, Accounting for Income
                                                                                                         Taxes. The effective date of Statement 96 was de-
1. This Statement addresses financial accounting                                                          layed to fiscal years that begin after December 15,
and reporting for the effects of income taxes1 that re-                                                  1992. In March 1989, the Board began consideration
sult from an enterprise’s activities during the current                                                  of requests to amend Statement 96 to (a) change the
and preceding years.                                                                                     criteria for recognition and measurement of deferred
                                                                                                         tax assets and various other requirements of State-
2. FASB Statement No. 96, Accounting for Income                                                          ment 96 and (b) reduce complexity. This Statement is
Taxes, which was issued in December 1987, super-                                                         the result of that reconsideration.




1
 Words that appear in the glossary are set in boldface type the first time they appear.


                                                                                        FAS109–6
STANDARDS OF FINANCIALACCOUNTING                                             b. Discounting (Paragraph 6 of APB Opinion
AND REPORTING                                                                   No. 10, Omnibus Opinion—1966, addresses that
                                                                                subject.)
Scope                                                                        c. Accounting for income taxes in interim periods
                                                                                (other than the criteria for recognition of tax ben-
3. This Statement establishes standards of financial                             efits and the effect of enacted changes in tax laws
accounting and reporting for income taxes that are                              or rates and changes in valuation allowances.
currently payable and for the tax consequences of:                              (APB Opinion No. 28, Interim Financial Report-
                                                                                ing, and other accounting pronouncements ad-
a. Revenues, expenses, gains, or losses that are in-                            dress that subject.)
   cluded in taxable income of an earlier or later
   year than the year in which they are recognized in
                                                                             Objectives and Basic Principles
   financial income
b. Other events that create differences between the                          6. One objective of accounting for income taxes is to
   tax bases of assets and liabilities and their                             recognize the amount of taxes payable or refundable
   amounts for financial reporting                                            for the current year. A second objective is to recog-
c. Operating loss or tax credit carrybacks for re-                           nize deferred tax liabilities and assets for the fu-
   funds of taxes paid in prior years and carry-                             ture tax consequences of events3 that have been
   forwards to reduce taxes payable in future years.                         recognized in an enterprise’s financial statements or
                                                                             tax returns.
This Statement supersedes Statement 96 and super-
sedes or amends other accounting pronouncements
                                                                             7. Ideally, the second objective might be stated more
listed in Appendix D.
                                                                             specifically to recognize the expected future tax con-
4. The principles and requirements of this Statement                         sequences of events that have been recognized in the
are applicable to:                                                           financial statements or tax returns. However, that ob-
                                                                             jective is realistically constrained because (a) the tax
a. Domestic federal (national) income taxes (U.S.                            payment or refund that results from a particular tax
   federal income taxes for U.S. enterprises) and                            return is a joint result of all the items included in that
   foreign, state, and local (including franchise)                           return, (b) taxes that will be paid or refunded in future
   taxes based on income                                                     years are the joint result of events of the current or
b. An enterprise’s2 domestic and foreign operations                          prior years and events of future years, and (c) infor-
   that are consolidated, combined, or accounted for                         mation available about the future is limited. As a re-
   by the equity method                                                      sult, attribution of taxes to individual items and
c. Foreign enterprises in preparing financial state-                          events is arbitrary and, except in the simplest situa-
   ments in accordance with U.S. generally ac-                               tions, requires estimates and approximations.
   cepted accounting principles.
                                                                             8. To implement the objectives in light of those con-
5. This Statement does not address:                                          straints, the following basic principles (the only ex-
                                                                             ceptions are identified in paragraph 9) are applied in
a. The basic methods of accounting for the U.S.                              accounting for income taxes at the date of the finan-
   federal investment tax credit (ITC) and for for-                          cial statements:
   eign, state, and local investment tax credits or
   grants (The deferral and flow-through methods as                           a. A tax liability or asset is recognized based on the
   set forth in APB Opinions No. 2 and No. 4, Ac-                               provisions of FASB Interpretation No. 48, Ac-
   counting for the “Investment Credit,” continue to                            counting for Uncertainty in Income Taxes, for the
   be acceptable methods to account for the U.S.                                estimated taxes payable or refundable on tax re-
   federal ITC.)                                                                turns for the current and prior years.




2The term enterprise is used throughout this Statement because accounting for income taxes is primarily an issue for business enterprises. How-
ever, the requirements of this Statement apply to the activities of a not-for-profit organization that are subject to income taxes.
3Some events do not have tax consequences. Certain revenues are exempt from taxation and certain expenses are not deductible. In the United
States, for example, interest earned on certain municipal obligations is not taxable and fines are not deductible.


                                                                 FAS109–7
b. A deferred tax liability or asset is recognized for                     e. Does not amend Accounting Research Bulletin
   the estimated future tax effects attributable to                           No. 51, Consolidated Financial Statements, for
   temporary differences and carryforwards.                                   income taxes paid on intercompany profits on as-
c. The measurement of current and deferred tax li-                            sets remaining within the group, and prohibits
   abilities and assets is based on provisions of the                         recognition of a deferred tax asset for the differ-
   enacted tax law; the effects of future changes in                          ence between the tax basis of the assets in the
   tax laws or rates are not anticipated.                                     buyer’s tax jurisdiction and their cost as reported
d. The measurement of deferred tax assets is re-                              in the consolidated financial statements
   duced, if necessary, by the amount of any tax                           f. Prohibits recognition of a deferred tax liability or
   benefits that, based on available evidence, are not                         asset for differences related to assets and liabili-
   expected to be realized.                                                   ties that, under FASB Statement No. 52, Foreign
                                                                              Currency Translation, are remeasured from the
9. The only exceptions in applying those basic prin-                          local currency into the functional currency using
ciples are that this Statement:                                               historical exchange rates and that result from
                                                                              (1) changes in exchange rates or (2) indexing for
a. Continues certain exceptions to the requirements
                                                                              tax purposes.
   for recognition of deferred taxes for the areas ad-
   dressed by APB Opinion No. 23, Accounting for
   Income Taxes—Special Areas, as amended by                               Temporary Differences
   this Statement (paragraphs 31–34)
b. Provides special transitional procedures for tem-                       10. Income taxes currently payable4 for a particu-
   porary differences related to deposits in statutory                     lar year usually include the tax consequences of most
   reserve funds by U.S. steamship enterprises                             events that are recognized in the financial statements
   (paragraph 32)                                                          for that year. However, because tax laws and finan-
c. Does not amend accounting for leveraged leases                          cial accounting standards differ in their recognition
   as required by FASB Statement No. 13, Account-                          and measurement of assets, liabilities, equity, rev-
   ing for Leases, and FASB Interpretation No. 21,                         enues, expenses, gains, and losses, differences arise
   Accounting for Leases in a Business Combina-                            between:
   tion (paragraphs 256–258)                                               a. The amount of taxable income and pretax finan-
                                                                              cial income for a year
[Note: Prior to the adoption of FASB Statement
                                                                           b. The tax bases of assets or liabilities4a and their
No. 141 (revised 2007), Business Combinations (ef-
                                                                              reported amounts in financial statements.
fective for business combinations with an acquisi-
tion date on or after the beginning of the first an-
nual reporting period beginning on or after                                11. An assumption inherent in an enterprise’s state-
12/15/08), subparagraph (d) should read as                                 ment of financial position prepared in accordance
follows:]                                                                  with generally accepted accounting principles is that
                                                                           the reported amounts of assets and liabilities will be
d. Prohibits recognition of a deferred tax liability or                    recovered and settled, respectively. Based on that as-
   asset related to goodwill (or the portion thereof)                      sumption, a difference between the tax basis of an as-
   for which amortization is not deductible for tax                        set or a liability and its reported amount in the state-
   purposes (paragraph 30)                                                 ment of financial position will result in taxable or
                                                                           deductible amounts in some future year(s) when the
[Note: After the adoption of Statement 141(R),                             reported amounts of assets are recovered and the re-
subparagraph (d) should read as follows:]                                  ported amounts of liabilities are settled. Examples
                                                                           follow:
d. Prohibits recognition of a deferred tax liability
   related to goodwill (or the portion thereof) for                        a. Revenues or gains that are taxable after they are
   which amortization is not deductible for tax pur-                          recognized in financial income. An asset (for ex-
   poses (paragraph 30)                                                       ample, a receivable from an installment sale) may


4References in this Statement to income taxes currently payable and (total) income tax expense are intended to include also income taxes cur-
rently refundable and (total) income tax benefit, respectively.
4a
  Interpretation 48 provides guidance for computing the tax bases of assets and liabilities for financial reporting purposes.


                                                               FAS109–8
     be recognized for revenues or gains that will re-                         jurisdiction might require adjustment of the tax
     sult in future taxable amounts when the asset is                          basis of a depreciable (or other) asset for the ef-
     recovered.                                                                fects of inflation. The inflation-adjusted tax basis
b.   Expenses or losses that are deductible after they                         of the asset would be used to compute future tax
     are recognized in financial income. A liability                            deductions for depreciation or to compute gain or
     (for example, a product warranty liability) may                           loss on sale of the asset. Amounts received upon
     be recognized for expenses or losses that will re-                        future recovery of the local currency historical
     sult in future tax deductible amounts when the                            cost of the asset will be less than the remaining
     liability is settled.                                                     tax basis of the asset, and the difference will be
c.   Revenues or gains that are taxable before they                            tax deductible when the asset is recovered.
     are recognized in financial income. A liability
     (for example, subscriptions received in advance)                     [Note: Prior to the adoption of Statement 141(R)
     may be recognized for an advance payment for                         (effective for business combinations with an ac-
     goods or services to be provided in future years.                    quisition date on or after the beginning of the first
     For tax purposes, the advance payment is in-                         annual reporting period beginning on or after
     cluded in taxable income upon the receipt of                         12/15/08), subparagraph (h) should read as
     cash. Future sacrifices to provide goods or serv-                     follows:]
     ices (or future refunds to those who cancel their
     orders) will result in future tax deductible                         h. Business combinations. There may be differences
     amounts when the liability is settled.                                  between the assigned values and the tax bases of
d.   Expenses or losses that are deductible before they                      the assets and liabilities recognized in a business
     are recognized in financial income. The cost of                          combination. Those differences will result in tax-
     an asset (for example, depreciable personal prop-                       able or deductible amounts when the reported
     erty) may have been deducted for tax purposes                           amounts of the assets and liabilities are recovered
     faster than it was depreciated for financial report-                     and settled, respectively.
     ing. Amounts received upon future recovery of
     the amount of the asset for financial reporting                       [Note: After the adoption of Statement 141(R),
     will exceed the remaining tax basis of the asset,                    subparagraph (h) should read as follows:]
     and the excess will be taxable when the asset is
     recovered.                                                           h. Business combinations. There may be differences
e.   A reduction in the tax basis of depreciable assets                      between the tax bases and the recognized values
     because of tax credits.5 Amounts received upon                          of assets acquired and liabilities assumed in a
     future recovery of the amount of the asset for fi-                       business combination. Those differences will re-
     nancial reporting will exceed the remaining tax                         sult in taxable or deductible amounts when the re-
     basis of the asset, and the excess will be taxable                      ported amounts of the assets or liabilities are re-
     when the asset is recovered.                                            covered or settled, respectively.
f.   ITC accounted for by the deferral method. Under
     Opinion 2, ITC is viewed and accounted for as a                      12. Examples (a)–(d) in paragraph 11 illustrate rev-
     reduction of the cost of the related asset (even                     enues, expenses, gains, or losses that are included in
     though, for financial statement presentation, de-                     taxable income of an earlier or later year than the
     ferred ITC may be reported as deferred income).                      year in which they are recognized in pretax financial
     Amounts received upon future recovery of the re-                     income. Those differences between taxable income
     duced cost of the asset for financial reporting will                  and pretax financial income also create differences
     be less than the tax basis of the asset, and the dif-                (sometimes accumulating over more than one year)
     ference will be tax deductible when the asset is                     between the tax basis of an asset or liability and its
     recovered.                                                           reported amount in the financial statements. Ex-
g.   An increase in the tax basis of assets because of                    amples (e)–(h) in paragraph 11 illustrate other events
     indexing whenever the local currency is the func-                    that create differences between the tax basis of an as-
     tional currency. The tax law for a particular tax                    set or liability and its reported amount in the financial


5The Tax    Equity and Fiscal Responsibility Act of 1982 provided taxpayers with the choice of either (a) taking the full amount of Accelerated
Cost Recovery System (ACRS) deductions and a reduced tax credit (that is, investment tax credit and certain other tax credits) or (b) taking the
full tax credit and a reduced amount of ACRS deductions.


                                                              FAS109–9
statements. For all eight examples, the differences re-                     ample is organizational costs that are recognized as
sult in taxable or deductible amounts when the re-                          expenses when incurred for financial reporting and
ported amount of an asset or liability in the financial                      are deferred and deducted in a later year for tax pur-
statements is recovered or settled, respectively.                           poses. In both instances, there is no related, identifi-
                                                                            able asset or liability for financial reporting, but there
13. This Statement refers collectively to the types of                      is a temporary difference that results from an event
differences illustrated by those eight examples and to                      that has been recognized in the financial statements
the ones described in paragraph 15 as temporary dif-                        and, based on provisions in the tax law, the tempo-
ferences. Temporary differences that will result in                         rary difference will result in taxable or deductible
taxable amounts in future years when the related as-
                                                                            amounts in future years.
set or liability is recovered or settled are often re-
ferred to in this Statement as taxable temporary dif-
ferences (examples (a), (d), and (e) in paragraph 11                        Recognition and Measurement
are taxable temporary differences). Likewise, tempo-
rary differences that will result in deductible amounts                     [Note: Prior to the adoption of Statement 141(R)
in future years are often referred to as deductible                         (effective for business combinations with an ac-
temporary differences (examples (b), (c), (f), and                          quisition date on or after the beginning of the first
(g) in paragraph 11 are deductible temporary differ-                        annual reporting period beginning on or after
ences). Business combinations (example (h)) may                             12/15/08), paragraph 16 should read as follows:]
give rise to both taxable and deductible temporary
differences.                                                                16. An enterprise shall recognize a deferred tax li-
                                                                            ability or asset for all temporary differences6 and op-
14. Certain basis differences may not result in tax-                        erating loss and tax credit carryforwards in accord-
able or deductible amounts in future years when the                         ance with the provisions of paragraph 17. Deferred
related asset or liability for financial reporting is re-                    tax expense or benefit is the change during the year
covered or settled and, therefore, may not be tempo-                        in an enterprise’s deferred tax liabilities and assets.7
rary differences for which a deferred tax liability                         For deferred tax liabilities and assets acquired in a
or asset is recognized. One example under current                           purchase business combination during the year, it is
U.S. tax law is the excess of cash surrender value of                       the change since the combination date. Total income
life insurance over premiums paid. That excess is a                         tax expense or benefit for the year is the sum of de-
temporary difference if the cash surrender value is                         ferred tax expense or benefit and income taxes cur-
expected to be recovered by surrendering the policy,                        rently payable or refundable.
but is not a temporary difference if the asset is ex-
pected to be recovered without tax consequence upon
                                                                            [Note: After the adoption of Statement 141(R),
the death of the insured (there will be no taxable
                                                                            paragraph 16 should read as follows:]
amount if the insurance policy is held until the death
of the insured).
                                                                            16. An enterprise shall recognize a deferred tax li-
15. Some temporary differences are deferred taxable                         ability or asset for all temporary differences6 and op-
income or tax deductions and have balances only on                          erating loss and tax credit carryforwards in accord-
the income tax balance sheet and therefore cannot be                        ance with the provisions of paragraph 17. Deferred
identified with a particular asset or liability for finan-                    tax expense or benefit is the change during the year
cial reporting. That occurs, for example, when a                            in an enterprise’s deferred tax liabilities and assets.7
long-term contract is accounted for by the percent-                         For deferred tax liabilities and assets recognized in a
age-of-completion method for financial reporting and                         business combination during the year, it is the change
by the completed-contract method for tax purposes.                          since the acquisition date. Total income tax expense
The temporary difference (income on the contract) is                        or benefit for the year is the sum of deferred tax ex-
deferred income for tax purposes that becomes tax-                          pense or benefit and income taxes currently payable
able when the contract is completed. Another ex-                            or refundable.


6Refer to paragraph 9. A deferred tax liability shall be recognized for the temporary differences addressed by Opinion 23 in accordance with the
requirements of this Statement (paragraphs 31–34) and that Opinion, as amended.
7
 Paragraph 230 addresses the manner of reporting the transaction gain or loss that is included in the net change in a deferred foreign tax liability
or asset when the reporting currency is the functional currency.


                                                               FAS109–10
Annual Computation of Deferred Tax Liabilities              edge about when deferred tax liabilities and assets
and Assets                                                  will be settled and realized.

17. Deferred taxes shall be determined separately for       19. In the U.S. federal tax jurisdiction, the applicable
each tax-paying component (an individual entity or          tax rate is the regular tax rate, and a deferred tax asset
group of entities that is consolidated for tax purposes)    is recognized for alternative minimum tax credit
in each tax jurisdiction. That determination includes       carryforwards in accordance with the provisions of
the following procedures:                                   paragraph 17(d) and (e) of this Statement. If alterna-
                                                            tive tax systems exist in jurisdictions other than the
a. Identify (1) the types and amounts of existing           U.S. federal jurisdiction, the applicable tax rate is de-
   temporary differences and (2) the nature and             termined in a manner consistent with the tax law after
   amount of each type of operating loss and tax            giving consideration to any interaction (that is, a
   credit carryforward and the remaining length of          mechanism similar to the U.S. alternative minimum
   the carryforward period                                  tax credit) between the two systems.
b. Measure the total deferred tax liability for taxable
   temporary differences using the applicable tax           20. All available evidence, both positive and nega-
   rate (paragraph 18)                                      tive, should be considered to determine whether,
c. Measure the total deferred tax asset for deduct-         based on the weight of that evidence, a valuation al-
   ible temporary differences and operating loss            lowance is needed. Information about an enterprise’s
   carryforwards using the applicable tax rate              current financial position and its results of operations
d. Measure deferred tax assets for each type of tax         for the current and preceding years ordinarily is
   credit carryforward                                      readily available. That historical information is
e. Reduce deferred tax assets by a valuation allow-         supplemented by all currently available information
   ance if, based on the weight of available evi-           about future years. Sometimes, however, historical
   dence, it is more likely than not (a likelihood of       information may not be available (for example,
   more than 50 percent) that some portion or all of        start-up operations) or it may not be as relevant (for
   the deferred tax assets will not be realized. The        example, if there has been a significant, recent
   valuation allowance should be sufficient to re-          change in circumstances) and special attention is
   duce the deferred tax asset to the amount that is        required.
   more likely than not to be realized.                     21. Future realization of the tax benefit of an existing
                                                            deductible temporary difference or carryforward ulti-
18. The objective is to measure a deferred tax liabil-      mately depends on the existence of sufficient taxable
ity or asset using the enacted tax rate(s) expected to      income of the appropriate character (for example, or-
apply to taxable income in the periods in which the         dinary income or capital gain) within the carryback,
deferred tax liability or asset is expected to be settled   carryforward period available under the tax law. The
or realized. Under current U.S. federal tax law, if tax-    following four possible sources of taxable income
able income exceeds a specified amount, all taxable          may be available under the tax law to realize a tax
income is taxed, in substance, at a single flat tax rate.    benefit for deductible temporary differences and
That tax rate shall be used for measurement of a de-        carryforwards:
ferred tax liability or asset by enterprises for which
graduated tax rates are not a significant factor. Enter-     a. Future reversals of existing taxable temporary
prises for which graduated tax rates are a significant          differences
factor shall measure a deferred tax liability or asset      b. Future taxable income exclusive of reversing
using the average graduated tax rate applicable to the         temporary differences and carryforwards
amount of estimated annual taxable income in the pe-        c. Taxable income in prior carryback year(s) if
riods in which the deferred tax liability or asset is es-      carryback is permitted under the tax law
timated to be settled or realized (paragraph 236).          d. Tax-planning strategies (paragraph 22) that
Other provisions of enacted tax laws should be con-            would, if necessary, be implemented to, for
sidered when determining the tax rate to apply to cer-         example:
tain types of temporary differences and carry-                 (1) Accelerate taxable amounts to utilize expir-
forwards (for example, the tax law may provide for                 ing carryforwards
different tax rates on ordinary income and capital             (2) Change the character of taxable or deductible
gains). If there is a phased-in change in tax rates, de-           amounts from ordinary income or loss to
termination of the applicable tax rate requires knowl-             capital gain or loss

                                                  FAS109–11
   (3) Switch from tax-exempt to taxable                  uation allowance is not needed when there is nega-
       investments.                                       tive evidence include (but are not limited to) the
                                                          following:
Evidence available about each of those possible
sources of taxable income will vary for different tax     a. Existing contracts or firm sales backlog that will
jurisdictions and, possibly, from year to year. To the       produce more than enough taxable income to re-
extent evidence about one or more sources of taxable         alize the deferred tax asset based on existing sales
income is sufficient to support a conclusion that a          prices and cost structures
valuation allowance is not necessary, other sources       b. An excess of appreciated asset value over the tax
need not be considered. Consideration of each source         basis of the entity’s net assets in an amount suffi-
is required, however, to determine the amount of the         cient to realize the deferred tax asset
valuation allowance that is recognized for deferred       c. A strong earnings history exclusive of the loss
tax assets.                                                  that created the future deductible amount (tax
                                                             loss carryforward or deductible temporary differ-
22. In some circumstances, there are actions (includ-
                                                             ence) coupled with evidence indicating that the
ing elections for tax purposes) that (a) are prudent
                                                             loss (for example, an unusual, infrequent, or ex-
and feasible, (b) an enterprise ordinarily might not
                                                             traordinary item) is an aberration rather than a
take, but would take to prevent an operating loss or
                                                             continuing condition.
tax credit carryforward from expiring unused, and
(c) would result in realization of deferred tax assets.
This Statement refers to those actions as tax-planning    25. An enterprise must use judgment in considering
strategies. An enterprise shall consider tax-planning     the relative impact of negative and positive evidence.
strategies in determining the amount of valuation al-     The weight given to the potential effect of negative
lowance required. Significant expenses to implement        and positive evidence should be commensurate with
a tax-planning strategy or any significant losses that     the extent to which it can be objectively verified. The
would be recognized if that strategy were imple-          more negative evidence that exists (a) the more posi-
mented (net of any recognizable tax benefits associ-       tive evidence is necessary and (b) the more difficult it
ated with those expenses or losses) shall be included     is to support a conclusion that a valuation allowance
in the valuation allowance. Refer to para-                is not needed for some portion or all of the deferred
graphs 246–251 for additional guidance.                   tax asset.

23. Forming a conclusion that a valuation allowance       A Change in the Valuation Allowance
is not needed is difficult when there is negative evi-
dence such as cumulative losses in recent years.          [Note: Prior to the adoption of Statement 141(R)
Other examples of negative evidence include (but are      (effective for business combinations with an ac-
not limited to) the following:                            quisition date on or after the beginning of the first
                                                          annual reporting period beginning on or after
a. A history of operating loss or tax credit carry-
                                                          12/15/08), paragraph 26 should read as follows:]
   forwards expiring unused
b. Losses expected in early future years (by a pres-
   ently profitable entity)                                26. The effect of a change in the beginning-of-the-
c. Unsettled circumstances that, if unfavorably re-       year balance of a valuation allowance that results
   solved, would adversely affect future operations       from a change in circumstances that causes a change
   and profit levels on a continuing basis in future       in judgment about the realizability of the related de-
   years                                                  ferred tax asset in future years ordinarily shall be in-
d. A carryback, carryforward period that is so brief      cluded in income from continuing operations. The
   that it would limit realization of tax benefits if      only exceptions are the initial recognition (that is, by
   (1) a significant deductible temporary difference       elimination of the valuation allowance) of certain tax
   is expected to reverse in a single year or (2) the     benefits that are allocated as required by para-
   enterprise operates in a traditionally cyclical        graph 30 and paragraph 36 (items (c) and (e)–(g)).
   business.                                              The effect of other changes in the balance of a valua-
                                                          tion allowance are allocated among continuing op-
24. Examples (not prerequisites) of positive evi-         erations and items other than continuing operations
dence that might support a conclusion that a val-         as required by paragraph 35.


                                                FAS109–12
[Note: After the adoption of Statement 141(R),                          for the Effects of Certain Types of Regulation, are
paragraph 26 should read as follows:]                                   not exempt from the requirements of this Statement.
                                                                        Specifically, this Statement:
26. The effect of a change in the beginning-of-the-
year balance of a valuation allowance that results                      a. Prohibits net-of-tax accounting and reporting
from a change in circumstances that causes a change                     b. Requires recognition of a deferred tax liability
in judgment about the realizability of the related de-                     (1) for tax benefits that are flowed through to cus-
ferred tax asset in future years ordinarily shall be in-                   tomers when temporary differences originate and
cluded in income from continuing operations. The                           (2) for the equity component of the allowance for
only exceptions are changes to valuation allowances                        funds used during construction
of certain tax benefits that are adjusted within the                     c. Requires adjustment of a deferred tax liability or
measurement period as required by paragraph 30A                            asset for an enacted change in tax laws or rates.
and the initial recognition (that is, by elimination of
the valuation allowances) of tax benefits of items                       If, as a result of an action by a regulator, it is probable
covered by paragraph 36 (items (c) and (e)–(g)). The                    that the future increase or decrease in taxes payable
effect of other changes in the balance of a valuation                   for items (b) and (c) above will be recovered from or
allowance are allocated among continuing operations                     returned to customers through future rates, an asset or
and items other than continuing operations as re-                       liability is recognized for that probable future rev-
quired by paragraph 35.                                                 enue or reduction in future revenue pursuant to para-
                                                                        graphs 9–11 of Statement 71. That asset or liability
An Enacted Change in Tax Laws or Rates                                  also is a temporary difference for which a deferred
                                                                        tax liability or asset shall be recognized.
27. Deferred tax liabilities and assets shall be ad-
justed for the effect of a change in tax laws or rates.                 Business Combinations
The effect shall be included in income from continu-
ing operations for the period that includes the enact-                  [Note: Prior to the adoption of Statement 141(R)
ment date.                                                              (effective for business combinations with an ac-
                                                                        quisition date on or after the beginning of the first
A Change in the Tax Status of an Enterprise                             annual reporting period beginning on or after
                                                                        12/15/08), paragraph 30 should read as follows:]
28. An enterprise’s tax status may change from non-
taxable to taxable or from taxable to nontaxable. An                    30. A deferred tax liability or asset shall be recog-
example is a change from a partnership to a corpora-                    nized in accordance with the requirements of this
tion and vice versa. A deferred tax liability or asset                  Statement for differences between the assigned val-
shall be recognized for temporary differences in ac-                    ues and the tax bases of the assets and liabilities (ex-
cordance with the requirements of this Statement at                     cept the portion of goodwill for which amortization is
the date that a nontaxable enterprise becomes a tax-                    not deductible for tax purposes, unallocated excess
able enterprise. A deferred tax liability or asset shall                over cost (also referred to as negative goodwill), le-
be eliminated at the date an enterprise ceases to be a                  veraged leases, and acquired Opinion 23 differ-
taxable enterprise. In either case, the effect of (a) an                ences8) recognized in a purchase business combina-
election for a voluntary change in tax status is recog-                 tion (refer to paragraphs 259–272 for additional
nized on the approval date or on the filing date if ap-                  guidance). If a valuation allowance is recognized for
proval is not necessary and (b) a change in tax status                  the deferred tax asset for an acquired entity’s deduct-
that results from a change in tax law is recognized on                  ible temporary differences or operating loss or tax
the enactment date. The effect of recognizing or                        credit carryforwards at the acquisition date, the tax
eliminating the deferred tax liability or asset shall be                benefits for those items that are first recognized (that
included in income from continuing operations.                          is, by elimination of that valuation allowance) in fi-
                                                                        nancial statements after the acquisition date shall be
Regulated Enterprises                                                   applied (a) first to reduce to zero any goodwill related
                                                                        to the acquisition, (b) second to reduce to zero other
29. Regulated enterprises that meet the criteria for                    noncurrent intangible assets related to the acquisition,
application of FASB Statement No. 71, Accounting                        and (c) third to reduce income tax expense.


8Acquired Opinion 23 differences are accounted for in accordance with the requirements of Opinion 23, as amended by this Statement.




                                                           FAS109–13
[Note: After the adoption of Statement 141(R),                           Opinion 23 and U.S. Steamship Enterprise
paragraph 30 should read as follows:]                                    Temporary Differences

30. As of the acquisition date, a deferred tax liability                 31. A deferred tax liability is not recognized for the
or asset shall be recognized in accordance with the                      following types of temporary differences unless it be-
requirements of this Statement for an acquired enti-                     comes apparent that those temporary differences will
ty’s taxable or deductible temporary differences (ex-                    reverse in the foreseeable future:
cept the portion of goodwill for which amortization is
not deductible for tax purposes, leveraged leases, and                   a. An excess of the amount for financial reporting
acquired Opinion 23 differences8) or operating loss                         over the tax basis of an investment in a foreign
or tax credit carryforwards. For example, taxable or                        subsidiary or a foreign corporate joint venture
deductible temporary differences arise from differ-                         as defined in APB Opinion No. 18, The Equi-
ences between the tax bases and the recognized val-                         ty Method of Accounting for Investments in
ues of assets acquired and liabilities assumed in a                         Common Stock, that is essentially permanent in
business combination. Refer to paragraphs 259–272                           duration
for additional guidance. An acquirer shall assess the                    b. Undistributed earnings of a domestic subsidiary
need for a valuation allowance as of the acquisition                        or a domestic corporate joint venture that is
date for an acquired entity’s deferred tax asset in ac-                     essentially permanent in duration that arose in
cordance with this Statement.                                               fiscal years beginning on or before December 15,
                                                                            19929
[Note: After the adoption of Statement 141(R) (ef-                       c. “Bad debt reserves” for tax purposes of U.S. sav-
fective for business combinations with an acquisi-                          ings and loan associations (and other “qualified”
tion date on or after the beginning of the first an-                         thrift lenders) that arose in tax years beginning
nual reporting period beginning on or after                                 before December 31, 1987 (that is, the base-year
12/15/08), paragraph 30A and footnote 8a are                                amount)
added as follows:]                                                       d. “Policyholders’ surplus” of stock life insurance
                                                                            companies that arose in fiscal years beginning on
30A. The effect of a change in a valuation allowance                        or before December 15, 1992.
for an acquired entity’s deferred tax asset shall be rec-
                                                                         The indefinite reversal criterion in Opinion 23 shall
ognized as follows:
                                                                         not be applied to analogous types of temporary
                                                                         differences.
a. Changes within the measurement period8a that
   result from new information about facts and cir-                      32. A deferred tax liability shall be recognized for
   cumstances that existed at the acquisition date                       the following types of taxable temporary differences:
   shall be recognized through a corresponding ad-
   justment to goodwill. However, once goodwill is                       a. An excess of the amount for financial reporting
   reduced to zero, an acquirer shall recognize any                         over the tax basis of an investment in a domestic
   additional decrease in the valuation allowance                           subsidiary that arises in fiscal years beginning
   as a bargain purchase in accordance with para-                           after December 15, 1992
   graphs 36–38 of Statement 141(R).                                     b. An excess of the amount for financial reporting
b. All other changes shall be reported as a reduction                       over the tax basis of an investment in a 50-
   or increase to income tax expense (or a direct ad-                       percent-or-less-owned investee except as pro-
   justment to contributed capital as required by                           vided in paragraph 31(a) and (b) for a corporate
   paragraph 26).                                                           joint venture that is essentially permanent in
                                                                            duration
8aThe measurement period in the context of a business combination is     c. “Bad debt reserves” for tax purposes of U.S. sav-
described in paragraphs 51–56 of Statement 141(R).                          ings and loan associations (and other “qualified”




8Acquired Opinion 23 differences are accounted for in accordance with the requirements of Opinion 23, as amended by this Statement.
9A last-in, first-out (LIFO) pattern determines whether reversals pertain to differences that arose in fiscal years beginning on or before Decem-
ber 15, 1992.


                                                             FAS109–14
   thrift lenders) that arise in tax years beginning af-   the noncontrolling interest ordinarily will approxi-
   ter December 31, 1987 (that is, amounts in excess       mately equal its percentage of the subsidiary’s net as-
   of the base-year amount).                               sets if those net assets consist primarily of cash.
The tax effects of temporary differences related to de-    34. A deferred tax asset shall be recognized for an
posits in statutory reserve funds by U.S. steamship        excess of the tax basis over the amount for financial
enterprises that arose in fiscal years beginning on or      reporting of an investment in a subsidiary or corpo-
before December 15, 1992 and that were not previ-          rate joint venture that is essentially permanent in du-
ously recognized shall be recognized when those            ration only if it is apparent that the temporary differ-
temporary differences reverse or in their entirety at      ence will reverse in the foreseeable future. The need
the beginning of the fiscal year for which this State-      for a valuation allowance for that deferred tax asset
ment is first applied.                                      and other deferred tax assets related to Opinion 23
                                                           temporary differences (for example, a deferred tax
33. Whether an excess of the amount for financial
                                                           asset for foreign tax credit carryforwards or for a sav-
reporting over the tax basis of an investment in a
                                                           ings and loan association’s bad-debt reserve for fi-
more-than-50-percent-owned domestic subsidiary is
                                                           nancial reporting) shall be assessed. Paragraph 21
a taxable temporary difference must be assessed. It is
                                                           identifies four sources of taxable income to be con-
not a taxable temporary difference if the tax law pro-
                                                           sidered in determining the need for and amount of a
vides a means by which the reported amount of that
                                                           valuation allowance for those and other deferred tax
investment can be recovered tax-free and the enter-
                                                           assets. One source is future reversals of temporary
prise expects that it will ultimately use that means.
                                                           differences. Future reversals of taxable differences
For example, under current U.S. federal tax law:
                                                           for which a deferred tax liability has not been recog-
a. An enterprise may elect to determine taxable gain       nized based on the exceptions cited in paragraph 31,
   or loss on the liquidation of an 80-percent-or-         however, shall not be considered. Another source is
   more-owned subsidiary by reference to the tax           future taxable income exclusive of reversing tempo-
   basis of the subsidiary’s net assets rather than by     rary differences and carryforwards. Future distribu-
   reference to the parent company’s tax basis for         tions of future earnings of a subsidiary or corporate
   the stock of that subsidiary.                           joint venture, however, shall not be considered ex-
b. An enterprise may execute a statutory merger            cept to the extent that a deferred tax liability has been
   whereby a subsidiary is merged into the parent          recognized for existing undistributed earnings or
   company, the minority shareholders receive stock        earnings have been remitted in the past.
   of the parent, the subsidiary’s stock is cancelled,
   and no taxable gain or loss results if the continu-     Intraperiod Tax Allocation
   ity of ownership, continuity of business enter-
   prise, and certain other requirements of the tax        35. Income tax expense or benefit for the year shall
   law are met.                                            be allocated among continuing operations, discontin-
                                                           ued operations, extraordinary items, other compre-
Some elections for tax purposes are available only if      hensive income, and items charged or credited di-
the parent company owns a specified percentage of           rectly to shareholders’ equity (paragraph 36). The
the subsidiary’s stock. The parent company some-           amount allocated to continuing operations is the tax
times may own less than that specified percentage,          effect of the pretax income or loss from continuing
and the price per share to acquire a noncontrolling in-    operations that occurred during the year, plus or mi-
terest may significantly exceed the per share equiva-       nus income tax effects of (a) changes in circum-
lent of the amount reported as noncontrolling interest     stances that cause a change in judgment about the re-
in the consolidated financial statements. In those cir-     alization of deferred tax assets in future years
cumstances, the excess of the amount for financial re-      (paragraph 26), (b) changes in tax laws or rates (para-
porting over the tax basis of the parent’s investment      graph 27), (c) changes in tax status (paragraph 28),
in the subsidiary is not a taxable temporary difference    and (d) tax-deductible dividends paid to shareholders
if settlement of the noncontrolling interest is ex-        (except as set forth in paragraph 36 for dividends
pected to occur at the point in time when settlement       paid on unallocated shares held by an employee
would not result in a significant cost. That could oc-      stock ownership plan [ESOP] or any other stock
cur, for example, toward the end of the life of the sub-   compensation arrangement). The remainder is allo-
sidiary, after it has recovered and settled most of its    cated to items other than continuing operations in
assets and liabilities, respectively. The fair value of    accordance with the provisions of paragraph 38.

                                                 FAS109–15
36. The tax effects of the following items occurring                     same manner as the source of the income or loss in
during the year are charged or credited directly to                      the current year and not in the same manner as (a) the
other comprehensive income or to related compo-                          source of the operating loss carryforward or taxes
nents of shareholders’ equity:                                           paid in a prior year or (b) the source of expected fu-
                                                                         ture income that will result in realization of a deferred
a. Adjustments of the opening balance of retained                        tax asset for an operating loss carryforward from the
   earnings for certain changes in accounting prin-                      current year. The only exceptions are as follows:
   ciples or a correction of an error
b. Gains and losses included in comprehensive                            a. Tax effects of deductible temporary differences
   income but excluded from net income (for                                 and carryforwards that existed at the date of a
   example, translation adjustments under State-                            purchase business combination and for which a
   ment 52 and changes in the unrealized holding                            tax benefit is initially recognized in subsequent
   gains and losses of securities classified as                              years in accordance with the provisions of
   available-for-sale under FASB Statement                                  paragraph 30
   No. 115, Accounting for Certain Investments in                        b. Tax effects of deductible temporary differences
   Debt and Equity Securities)                                              and carryforwards that are allocated to sharehold-
c. An increase or decrease in contributed capital                           ers’ equity in accordance with the provisions of
   (for example, deductible expenditures reported as                        paragraph 36 (items (c) and (e)–(g)).
   a reduction of the proceeds from issuing capital
   stock)                                                                [Note: After the adoption of Statement 141(R),
d. An increase in the tax basis of assets acquired in                    paragraph 37 should read as follows:]
   a taxable business combination accounted for
   as a pooling of interests9a and for which a tax                       37. The tax benefit of an operating loss carryforward
   benefit is recognized at the date of the business                      or carryback (other than those carryforwards referred
   combination                                                           to at the end of this paragraph) shall be reported in the
e. Expenses for employee stock options recognized                        same manner as the source of the income or loss in
   differently for financial reporting and tax pur-                       the current year and not in the same manner as (a) the
   poses (refer to paragraphs 58–63 of FASB                              source of the operating loss carryforward or taxes
   Statement No. 123 (revised 2004), Share-Based                         paid in a prior year or (b) the source of expected fu-
   Payment)                                                              ture income that will result in realization of a deferred
f. Dividends that are paid on unallocated shares                         tax asset for an operating loss carryforward from the
   held by an ESOP and that are charged to retained                      current year. The only exception is the tax effects of
   earnings                                                              deductible temporary differences and carryforwards
g. Deductible temporary differences and carry-                           that are allocated to shareholders’ equity in accord-
   forwards that existed at the date of a quasi reorga-                  ance with the provisions of paragraph 36 (items (c)
   nization (except as set forth in paragraph 39).                       and (e)–(g)).

[Note: Prior to the adoption of Statement 141(R)                         38. If there is only one item other than continuing
(effective for business combinations with an ac-                         operations, the portion of income tax expense or ben-
quisition date on or after the beginning of the first                     efit for the year that remains after the allocation to
annual reporting period beginning on or after                            continuing operations is allocated to that item. If
12/15/08), paragraph 37 should read as follows:]                         there are two or more items other than continuing op-
                                                                         erations, the amount that remains after the allocation
37. The tax benefit of an operating loss carryforward                     to continuing operations shall be allocated among
or carryback (other than those carryforwards referred                    those other items in proportion to their individual ef-
to at the end of this paragraph) shall be reported in the                fects on income tax expense or benefit for the year.


[Note: Prior to the adoption of Statement 141(R) (effective for business combinations with an acquisition date on or after the beginning
of the first annual reporting period beginning on or after 12/15/08), footnote 9a should read as follows:]
9aFASB Statement No. 141, Business Combinations, prohibits the use of the pooling-of-interests method for all business combinations initiated
after June 30, 2001.
[Note: After the adoption of Statement 141(R), footnote 9a should read as follows:]
9aFASB Statement No. 141, Business Combinations, prohibited the use of the pooling-of-interests method for all business combinations initiated
after June 30, 2001. FASB Statement No. 141 (revised 2007), Business Combinations, which replaces Statement 141, continues to prohibit the
use of the pooling-of-interests method.


                                                            FAS109–16
When there are two or more items other than con-                          Separate Financial Statements of a Subsidiary
tinuing operations, the sum of the separately calcu-
lated, individual effects of each item sometimes may                      40. The consolidated amount of current and deferred
not equal the amount of income tax expense or ben-                        tax expense for a group that files a consolidated tax
efit for the year that remains after the allocation to                     return shall be allocated among the members of the
continuing operations. In those circumstances, the                        group when those members issue separate financial
procedures to allocate the remaining amount to items                      statements. This Statement does not require a single
other than continuing operations are as follows:                          allocation method. The method adopted, however,
                                                                          shall be systematic, rational, and consistent with the
a. Determine the effect on income tax expense or                          broad principles established by this Statement. A
   benefit for the year of the total net loss for all net                  method that allocates current and deferred taxes to
   loss items                                                             members of the group by applying this Statement to
b. Apportion the tax benefit determined in (a) rat-                        each member as if it were a separate taxpayer10
   ably to each net loss item                                             meets those criteria. Examples of methods that are
c. Determine the amount that remains, that is, the                        not consistent with the broad principles established
   difference between (1) the amount to be allocated                      by this Statement include:
   to all items other than continuing operations and
   (2) the amount allocated to all net loss items                         a. A method that allocates only current taxes pay-
d. Apportion the tax expense determined in (c) rat-                          able to a member of the group that has taxable
   ably to each net gain item.                                               temporary differences
                                                                          b. A method that allocates deferred taxes to a mem-
                                                                             ber of the group using a method fundamentally
Refer to paragraphs 273–276 for additional guidance.
                                                                             different from the asset and liability method de-
                                                                             scribed in this Statement (for example, the Opin-
Certain Quasi Reorganizations                                                ion 11 deferred method)
                                                                          c. A method that allocates no current or deferred tax
39. The tax benefits of deductible temporary differ-                          expense to a member of the group that has tax-
ences and carryforwards as of the date of a quasi re-                        able income because the consolidated group has
organization as defined and contemplated in ARB                               no current or deferred tax expense.
No. 43, Chapter 7, “Capital Accounts,” ordinarily are
reported as a direct addition to contributed capital if                   Certain disclosures are also required (paragraph 49).
the tax benefits are recognized in subsequent years.
The only exception is for enterprises that have previ-                    Financial Statement Presentation
ously both adopted Statement 96 and effected a quasi
reorganization that involves only the elimination of a                    41. In a classified statement of financial position, an
deficit in retained earnings by a concurrent reduction                     enterprise shall separate deferred tax liabilities and
in contributed capital prior to adopting this State-                      assets into a current amount and a noncurrent
ment. For those enterprises, subsequent recognition                       amount. Deferred tax liabilities and assets shall be
of the tax benefit of prior deductible temporary dif-                      classified as current or noncurrent based on the clas-
ferences and carryforwards is included in income and                      sification of the related asset or liability for financial
reported as required by paragraph 37 (without regard                      reporting. A deferred tax liability or asset that is not
to the referenced exceptions) and then reclassified                        related to an asset or liability for financial reporting
from retained earnings to contributed capital. Those                      (paragraph 15), including deferred tax assets related
enterprises should disclose (a) the date of the quasi                     to carryforwards, shall be classified according to the
reorganization, (b) the manner of reporting the tax                       expected reversal date of the temporary difference
benefits and that it differs from present accounting re-                   pursuant to FASB Statement No. 37, Balance Sheet
quirements for other enterprises and (c) the effect of                    Classification of Deferred Income Taxes. The valua-
those tax benefits on income from continuing opera-                        tion allowance for a particular tax jurisdiction shall
tions, income before extraordinary items, and on net                      be allocated between current and noncurrent deferred
income (and on related per share amounts).                                tax assets for that tax jurisdiction on a pro rata basis.


10In that situation, the sum of the amounts allocated to individual members of the group may not equal the consolidated amount. That may also
be the result when there are intercompany transactions between members of the group. The criteria are satisfied, nevertheless, after giving effect
to the type of adjustments (including eliminations) normally present in preparing consolidated financial statements.


                                                              FAS109–17
42. For a particular tax-paying component of an en-          c. The amount of the unrecognized deferred tax li-
terprise and within a particular tax jurisdiction, (a) all      ability for temporary differences related to invest-
current deferred tax liabilities and assets shall be off-       ments in foreign subsidiaries and foreign corpo-
set and presented as a single amount and (b) all non-           rate joint ventures that are essentially permanent
current deferred tax liabilities and assets shall be off-       in duration if determination of that liability is
set and presented as a single amount. However, an               practicable or a statement that determination is
enterprise shall not offset deferred tax liabilities and        not practicable
assets attributable to different tax-paying components       d. The amount of the deferred tax liability for tem-
of the enterprise or to different tax jurisdictions.            porary differences other than those in (c) above
                                                                (that is, undistributed domestic earnings, the bad-
Financial Statement Disclosure                                  debt reserve for tax purposes of a U.S. savings
                                                                and loan association or other qualified thrift
43. The components of the net deferred tax liability            lender, the policyholders’ surplus of a life insur-
or asset recognized in an enterprise’s statement of             ance enterprise, and the statutory reserve funds of
financial position shall be disclosed as follows:                a U.S. steamship enterprise) that is not recog-
                                                                nized in accordance with the provisions of para-
a. The total of all deferred tax liabilities measured in
                                                                graphs 31 and 32.
   procedure (b) of paragraph 17
b. The total of all deferred tax assets measured in          45. The significant components of income tax ex-
   procedures (c) and (d) of paragraph 17                    pense attributable to continuing operations for each
c. The total valuation allowance recognized for de-          year presented shall be disclosed in the financial
   ferred tax assets determined in procedure (e) of          statements or notes thereto. Those components
   paragraph 17.                                             would include, for example:
The net change during the year in the total valuation        a. Current tax expense or benefit
allowance also shall be disclosed. A public enter-           b. Deferred tax expense or benefit (exclusive of the
prise shall disclose the approximate tax effect of              effects of other components listed below)
each type of temporary difference and carryforward           c. Investment tax credits
that gives rise to a significant portion of deferred tax      d. Government grants (to the extent recognized as a
liabilities and deferred tax assets (before allocation of       reduction of income tax expense)
valuation allowances). A nonpublic enterprise shall          e. The benefits of operating loss carryforwards
disclose the types of significant temporary differ-
ences and carryforwards but may omit disclosure              [Note: Prior to the adoption of Statement 141(R)
of the tax effects of each type. A public enterprise that    (effective for business combinations with an ac-
is not subject to income taxes because its income is         quisition date on or after the beginning of the first
taxed directly to its owners shall disclose that fact        annual reporting period beginning on or after
and the net difference between the tax bases and the         12/15/08), subparagraph (f) should read as
reported amounts of the enterprise’s assets and              follows:]
liabilities.
                                                             f. Tax expense that results from allocating certain
44. The following information shall be disclosed                tax benefits either directly to contributed capital
whenever a deferred tax liability is not recognized             or to reduce goodwill or other noncurrent intan-
because of the exceptions to comprehensive recogni-             gible assets of an acquired entity
tion of deferred taxes for any of the areas addressed        [Note: After the adoption of Statement 141(R),
by Opinion 23 (as amended by this Statement) or for          subparagraph (f) should read as follows:]
deposits in statutory reserve funds by U.S. steamship
enterprises:                                                 f. Tax expense that results from allocating certain
                                                                tax benefits directly to contributed capital
a. A description of the types of temporary differ-           g. Adjustments of a deferred tax liability or asset for
   ences for which a deferred tax liability has not             enacted changes in tax laws or rates or a change
   been recognized and the types of events that                 in the tax status of the enterprise
   would cause those temporary differences to be-
   come taxable                                              [Note: Prior to the adoption of Statement 141(R)
b. The cumulative amount of each type of tempo-              (effective for business combinations with an ac-
   rary difference                                           quisition date on or after the beginning of the first

                                                   FAS109–18
annual reporting period beginning on or after                  48. An enterprise shall disclose (a) the amounts and
12/15/08), subparagraph (h) should read as                     expiration dates of operating loss and tax credit
follows:]                                                      carryforwards for tax purposes and (b) any portion of
                                                               the valuation allowance for deferred tax assets for
h. Adjustments of the beginning-of-the-year bal-               which subsequently recognized tax benefits will be
   ance of a valuation allowance because of a                  allocated to reduce goodwill or other noncurrent in-
   change in circumstances that causes a change in             tangible assets of an acquired entity or directly to
   judgment about the realizability of the related de-         contributed capital (paragraphs 30 and 36).
   ferred tax asset in future years.
                                                               [Note: After the adoption of Statement 141(R),
[Note: After the adoption of Statement 141(R),                 paragraph 48 should read as follows:]
subparagraph (h) should read as follows:]
                                                               48. An enterprise shall disclose (a) the amounts
h. Adjustments of the beginning-of-the-year bal-               and expiration dates of operating loss and tax credit
   ance of a valuation allowance because of a                  carryforwards for tax purposes and (b) any portion
   change in circumstances that causes a change in             of the valuation allowance for deferred tax as-
   judgment about the realizability of the related de-         sets for which subsequently recognized tax benefits
   ferred tax asset in future years. For example, any          will be credited directly to contributed capital
   acquisition-date income tax benefits or expenses             (paragraph 36).
   recognized from changes in the acquirer’s valua-
   tion allowance for its previously existing deferred         49. An entity that is a member of a group that files a
   tax assets as a result of a business combination            consolidated tax return shall disclose in its separately
   (paragraph 266).                                            issued financial statements:

46. The amount of income tax expense or benefit al-             a. The aggregate amount of current and deferred tax
located to continuing operations and the amounts                  expense for each statement of earnings presented
separately allocated to other items (in accordance                and the amount of any tax-related balances due to
with the provisions of paragraphs 35–39) shall be                 or from affiliates as of the date of each statement
disclosed for each year for which those items are                 of financial position presented
presented.                                                     b. The principal provisions of the method by which
                                                                  the consolidated amount of current and deferred
47. A public enterprise shall disclose a reconciliation           tax expense is allocated to members of the group
using percentages or dollar amounts of (a) the re-                and the nature and effect of any changes in that
ported amount of income tax expense attributable to               method (and in determining related balances to or
continuing operations for the year to (b) the amount              from affiliates) during the years for which the dis-
of income tax expense that would result from apply-               closures in (a) above are presented.
ing domestic federal statutory tax rates to pretax in-
come from continuing operations. The “statutory”               Effective Date and Transition
tax rates shall be the regular tax rates if there are alter-
native tax systems. The estimated amount and the na-           50. This Statement shall be effective for fiscal years
ture of each significant reconciling item shall be dis-         beginning after December 15, 1992. Earlier applica-
closed. A nonpublic enterprise shall disclose the              tion is encouraged. Financial statements for any
nature of significant reconciling items but may omit a          number of consecutive fiscal years before the effec-
numerical reconciliation. If not otherwise evident             tive date may be restated to conform to the provi-
from the disclosures required by this paragraph and            sions of this Statement. Initial application of this
paragraphs 43–46, all enterprises shall disclose the           Statement shall be as of the beginning of an enter-
nature and effect of any other significant matters af-          prise’s fiscal year (that is, if the Statement is adopted
fecting comparability of information for all periods           prior to the effective date and during an interim pe-
presented.                                                     riod other than the first interim period, all prior in-
                                                               terim periods of that fiscal year shall be restated). Ap-
[Note: Prior to the adoption of Statement 141(R)               plication of the requirements for recognition of a
(effective for business combinations with an ac-               deferred tax liability or asset for a restated interim or
quisition date on or after the beginning of the first           annual period shall be based on the facts and circum-
annual reporting period beginning on or after                  stances as they existed at that prior date and without
12/15/08), paragraph 48 should read as follows:]               the benefit of hindsight.

                                                     FAS109–19
51. The effect of initially applying this Statement        for leveraged leases and except as provided in para-
shall be reported as the effect of a change in account-    graph 55, (a) remaining balances as of the date of ini-
ing principle in a manner similar to the cumulative        tially applying this Statement for assets and liabilities
effect of a change in accounting principle (APB            acquired in that combination shall be adjusted from
Opinion No. 20, Accounting Changes, paragraph 20)          their net-of-tax amounts to their pretax amounts and
except for initially recognized tax benefits of the type    (b) any differences between those adjusted remaining
required by this Statement to be excluded from com-        balances and their tax bases are temporary differ-
prehensive income. If the earliest year restated is not    ences. A deferred tax liability or asset shall be recog-
presented in the financial statements, the beginning        nized for those temporary differences pursuant to the
balance of retained earnings and, if necessary, any        requirements of this Statement as of the beginning of
other components of shareholders’ equity for the ear-      the year for which this Statement is first applied.
liest year presented shall be adjusted for the effect of
the restatement as of that date. Paragraph 30 ad-          55. If, for a particular business combination, deter-
dresses the manner of reporting acquired tax benefits       mination of the adjustment for any or all of the assets
initially recognized subsequent to a business combi-       and liabilities referred to in paragraph 54 is impracti-
nation and paragraph 36 identifies five items ((c)–(g))      cable, either because the necessary information is no
for which tax benefits are excluded from comprehen-         longer available or because the cost to develop that
sive income and allocated directly to contributed          information is excessive, none of the remaining bal-
capital or retained earnings. Pro forma effects of ret-    ances of any assets and liabilities acquired in that
roactive application (Opinion 20, paragraph 21) are        combination shall be adjusted to pretax amounts, that
not required if statements of earnings presented for       is, all remaining amounts that were originally as-
prior years are not restated.                              signed on a net-of-tax basis pursuant to paragraph 89
                                                           of Opinion 16 shall not be adjusted. Any differences
52. When initially presented, the financial state-          between those unadjusted remaining balances and
ments for the year this Statement is first adopted shall    their tax bases are temporary differences, and a de-
disclose:                                                  ferred tax liability or asset shall be recognized for
                                                           those temporary differences pursuant to the require-
a. The effect, if any, of adopting this Statement on       ments of this Statement as of the beginning of the
   pretax income from continuing operations (for           year for which this Statement is first applied.
   example, the effect of adjustments for prior pur-
   chase business combinations and for regulated           56. The net effect of the adjustments required by
   enterprises) for the year of adoption if restated       paragraphs 54 and 55 shall be included in the effect
   financial statements for the prior year are not          of initially applying this Statement and reported in
   presented                                               accordance with the provisions of paragraph 51.
b. The effect of any restatement on income from
   continuing operations, income before extraordi-         Assets of Regulated Enterprises Reported on a
   nary items, and net income (and on related per          Net-of-Tax or After-Tax Basis
   share amounts) for each year for which restated
   financial statements are presented.                      57. Some regulated enterprises that apply State-
                                                           ment 71 have accounted for certain components of
Prior Business Combinations                                construction in progress on either a net-of-tax or
                                                           after-tax basis, or both. Upon initial application of
53. If financial statements for prior years are re-         this Statement, those enterprises shall make appropri-
stated, all purchase business combinations that were       ate adjustments required by this Statement to account
consummated in those prior years shall be remea-           for the net-of-tax and after-tax components of con-
sured in accordance with the requirements of this          struction in progress as if the requirements of this
Statement.                                                 Statement were applied to that construction in
                                                           progress in all prior years. Except as provided in
54. For a purchase business combination consum-            paragraph 58, the reported amount of plant in service
mated prior to the beginning of the year for which         at the beginning of the year for which this Statement
this Statement is first applied, any balance remaining      is first applied shall be similarly adjusted.
as of that date for goodwill or negative goodwill shall
not be adjusted to equal the amount it would be if fi-      58. If determination of the adjustment to plant in
nancial statements for the year of the combination         service referred to in paragraph 57 is impracticable,
and subsequent years were restated. However, except        either because the necessary information is no longer

                                                 FAS109–20
available or because the cost to develop that informa-                                                         through future rates, an asset and the related deferred
tion is excessive, any difference between the reported                                                         tax liability for that additional temporary difference
amount and the tax basis of that plant in service is a                                                         shall be recognized for that probable future revenue.
temporary difference, and a deferred tax liability
shall be recognized for that temporary difference. If,                                                         59. The net effect of the adjustments required by
as a result of an action by a regulator, it is probable                                                        paragraphs 57 and 58 shall be included in the effect
that amounts required for settlement of that deferred                                                          of initially applying this Statement and reported in
tax liability will be recovered from customers                                                                 accordance with the provisions of paragraph 51.


                                                                   The provisions of this Statement need
                                                                    not be applied to immaterial items.


   This Statement was adopted by the unanimous vote of the six members of the Financial Accounting
Standards Board:

                  Dennis R. Beresford,                                                 Victor H. Brown                                                   A. Clarence Sampson
                   Chairman                                                            James J. Leisenring                                               Robert J. Swieringa
                  Joseph V. Anania


Appendix A


BASIS FOR CONCLUSIONS


CONTENTS
                                                                                                                                                                                                    Paragraph
                                                                                                                                                                                                     Numbers

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     60− 62
Conclusions on Basic Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        63− 86
    Benefits and Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                68− 74
    A Deferred Tax Liability for Taxable Temporary Differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                               75− 79
    A Deferred Tax Asset for Deductible Temporary Differences and Carryforwards . . . . . . . . . . . . . . . .                                                                                       80− 86
The Asset and Liability Approach to Accounting for Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                    87−168
    Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           89− 91
    Realizability of Deferred Tax Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                  92− 98
    Cumulative Losses in Recent Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                   99−103
    Tax-Planning Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    104−109
    Change in Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                              110−111
    Changes in Tax Law and Tax Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                   112−113
    Temporary Differences That Are Not Timing Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                            114−124
        Deferred Investment Tax Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                116−117
        Foreign Nonmonetary Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               118−120
        Intercompany Transfers of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                  121−124
    Regulated Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                      125
    Leveraged Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   126
    Business Combinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     127−138
    Intraperiod Tax Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                      139−148
    Classification in a Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                               149−153
    Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      154−159
    Effective Date and Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          160−168

                                                                                            FAS109–21

								
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