Allocation of federal income taxes;

              Allocation of Federal Income Taxes
BY GRIFFITH H. BAXTER Principal, Tulsa Office
Presented before the Tulsa Chapter of the Oklahoma Society of Certified Public Accountants—December 1959
THE principal problem of federal income tax allocation stems from the differences in determining income for financial statement pur­poses
under generally recognized principles of accounting and in determining taxable income under the provisions of the income tax laws.
The Code, the regulations, and other pronouncements of the Treasury Department establish the rules as to what items are to be included in gross income and what items are to be deducted there­from
in arriving at taxable net income. When these rules conform to generally accepted accounting principles in all respects there is then no question but that the income tax computed represents a proper charge to book income for the year.
There are, however, many differences between the rules for ascertaining taxable income and the rules for reporting net income under generally accepted accounting principles. This results in an income tax actually payable that is not matched with revenue and other costs included in the income statement for the year. In such a case it may be decided to provide for an income tax expense in the income statement in an amount that is based on book income rather than on the actual income tax computed under the Internal Revenue Code.
Allocation of income tax generally falls into three major classi­fications:
(1) allocation within the income statement itself, (2) allo­cation
between the income statement and the surplus statement, and (3) allocation with respect to accounting periods. It is only with respect to this third class that the reason or necessity for allocation of income tax expenses arises from differences between book net income and taxable net income computed under the IRC. The first two types of allocation are discussed briefly, and the third type at greater length, in subsequent paragraphs.
ALLOCATION WITHIN INCOME STATEMENT The first classification (allocation within the income statement
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