Practical Aspects of Income Tax Allocation
by PRESLEY FORD, JR. Partner, Tulsa Office
Presented before the National Association of Accountants, Tulsa Chapter—December 1968
IN OPINION 11 the Accounting Principles Board sought to conclude the longstanding debate over income tax allocation by affirming that the interperiod allocation of income taxes should be continued, by deciding that comprehensive rather than partial allocation is called for, and by prescribing the deferred as contrasted with the liability method.
My assignment is to discuss briefly the practical aspects of applying these decisions. There has been placed in your hands a set of simple exhibits, which may help you to follow my comments more easily.
It is necessary that a few basic terms be understood before we plunge into our subject.
Income taxes means all taxes based on income, whether they be federal,
state, or foreign.
Income tax expense means the income taxes allocable to the period for purposes of determining book net income.
Pretax accounting income means book income before income tax expense.
Taxable income means the income (or loss) to be shown by the returns for the period.
Timing difference means an amount which enters into pretax accounting
income in one period and taxable income in another. Tax effects means the differences between income tax expense and taxes currently due arising from timing differences entering into the difference between pretax accounting income and taxable income. It does not include permanent differences. It does include initial tax effects which are tax differentials arising from timing differences originating in the period and the reversal of tax effects which are the tax differentials flowing from the reversal of timing differences