The Accounting Historians Journal
Vol. 13, No. 2
Frank R. Rayburn THE UNIVERSITY OF ALABAMA
A CHRONOLOGICAL REVIEW OF THE AUTHORITATIVE LITERATURE ON INTERPERIOD TAX ALLOCATION: 1940-1985
Abstract: In this paper, the authoritative literature is reviewed chronologically to trace the development of interperiod tax allocation from its inception in the early 1940s to late 1985. The study reveals an evolution from acceptance of either the liability, deferred or net-of-tax methods of partial allocation to the deferred method of comprehensive allocation, the FASB's recent endorsement of the liability method of comprehensive allocation suggests a major theoretical shift from ac-counting policy followed since 1967.
On January 27, 1982, reconsideration of an issue that had been debated for over forty years was initiated. The Financial Accounting Standards Board (FASB) added a project on accounting for income taxes to its agenda.
From enactment of the first income tax law in 1913 to the early 1940s, universal accounting practice (except for utilities) was to determine the income tax provision on the basis of income taxes payable. During that period income taxes were relatively low and the differences, if any, between pretax accounting income and tax-able income caused no significant distortion of reported net in-come [Crawford, May 1946, p. 756]. Thus, income tax allocation was not an issue in this country until the decade of the forties. Since then, the controversy has ebbed and flowed, with changes in the authoritative accounting literature generally resulting from changes in the tax statutes and/or to minimize diversity in finan-cial reporting.
The purpose in this paper is to trace the development of income tax allocation from the 1940s to the present. Research for the paper is limited primarily to the authoritative literature. No attempt is made to survey the whole body of literature on the subject. There