Accounting for Income Taxes: ASC 740 (FAS 109) and related pronouncements

Overview

We provide a comprehensive coverage of accounting for income taxes as per ASC 740 (FAS 109) from an introductory level to the advanced level. We have more than 15 years of experience teaching these topics. These seminars can range from half a day to a full week depending on which of the following topics are coverered, the level of detail, and the time allotted to hands on practice.

Financial statement items related to taxes

Book-tax differences

  • Book income versus taxable income
  • Book basis versus tax basis
  • Permanent versus temporary differences
  • Taxable temporary diffferences versus deductible temporary differences
  • The balance sheet approach to accounting for income taxes
  • Deferred tax liabilities versus deferred tax assets

Balance sheet: Tax related assets and liabilities

  • Taxes payable and refundable
  • Tax contingencies or unrecognized tax benefits
  • Deferred tax assets and liabilities

Income statement: Income tax expense or tax provision

  • Tax return and tax bill
  • Current tax expense versus tax bill: Tax contingecies, return to provision reconciliations, and stock option excess income tax benefits
  • Total tax expense versus current tax expense: Deferred tax expense

Cash flow statement: Taxes paid

  • Indirect format adjustments for changes in balance sheet items related to taxes
  • Taxes paid
  • Stock option excess income tax benefits

The tax note

  • Income in domestic and foreign jurisdictions
  • Rate reconciliation table
  • Sources of deferred tax assets and liabilities
  • Rollforward of unrecognized tax benefits or tax contingencies
  • Discussion of net operating losses and valuation allowances
  • Discussion of unremitted foreign earnings

Key ideas in accounting for income taxes as per ASC 740 (FAS 109)

Permanent differences

  • Non-taxable income
  • Non-deductible expenses
  • Tax revenues that are not book revenues
  • Tax deductions that are not book expenses
  • Effect of permanent differences listed above on effective tax rate

Taxable temporary differences and deferred tax liabilities

  • Book revenues that precede taxable revenues
  • Book expenses that follow tax deductions

Deductible temporary differences and deferred tax assets

  • Book revenues that follow taxable revenues
  • Book expenses that precede tax deductions

Introduction to advanced aspects of accounting for income taxes as per ASC 740 (FAS 109)

Tax contingencies or unrecognized tax benefits (UTB) for uncertain tax positions (UTP) as per ASC 740 (FIN 48)

  • Three levels of taxes: as filed taxes, more likely than not taxes, and book taxes
  • Three levels of balance sheet accruals: taxes payable, UTB liabilities or tax contingencies, and deferred tax liabilities
  • Three levels of expenses: tax due, current tax expense, and total tax expense
  • This topic is described in more detail below.

Deferred taxes and other comprehensive income

  • Explanation of other comprehensie income using available-for-sale securities as an example
  • Book expenses that precede tax deductions

Consequences of treating all tax payments as operating payments as per ASC 230 (FAS 95)

  • Tax payments related to divesting activities such as sale of PP&E
  • Tax payments related to financing activities such as bond buybacks

When deferred taxes lead to direct adjustments to equity

  • Convertible debt as per ASC 470
  • Share-based compensation due to stock options and restricted stock granted to employees as per ASC 718 (FAS 123R) is describled later

Common permanent differences

Non-taxable income

  • Ta

Non-deductible expenses

Tax revenues that are not book revenues

Tax deductions that are not book expenses

Common temporary differences

Taxable temporary difference: Book revenues that precede taxable revenues

Taxable temporary difference: Book expenses that follow tax deductions

Deductible temporary difference: Book revenues that precede taxable revenues

Deductible temporary difference: Book expenses that follow tax deductions