ASC 740 Part 2: Practical Application for Income Taxes Based on Income

Author: Lynn Fountain

The pandemic has impacted almost every aspect of our lives and businesses. Income taxes is not an exception. ASC 740 deals with taxes based on income. In general, when a tax is based on income, most items that enter into pretax accounting income enter into taxable income in the same year, and vice versa. Some events, however, are recognized for book purposes and tax purposes in different years. Over time, as these differences reverse, they eventually offset each other. The tax effects of these differences, referred to as deferred taxes, should be accounted for in the intervening periods. All tax professionals that want a basic understanding of ASC 740/FAS 109 concepts and the tools to prepare basic tax provisions will benefit from this course.

This is part two in the series that focuses on these concepts. In this course we will review concepts related to how the pandemic has impacted considerations for valuation allowances, changes in tax rates, changes in entity tax status, and accounting for uncertainty in income taxes.

Publication Date: December 2020

Designed For
All tax professionals that want a basic understanding of ASC 740/FAS 109 concepts and the tools to prepare basic tax provisions will benefit from this course. Business owners and operational professionals, Accountants and Finance professionals and Internal auditors, Tax and Legal professionals.

Topics Covered

• Overview of Deferred Taxes
• Valuation Allowances and Practical Application Considerations
• Assessing Realizability of DTA and Practical Application Considerations
• Evidence to Be Considered
• Evidence — Practical Application
• Partial Valuation Allowance; Character of Income or Loss
• Tax Accounting for Financial Instruments
• COVID Implications on Financial Instruments
• Tax Accounting for Business Combinations
• Intra-Period Allocations and Practical Applications
• Application: Effects of Pretax Income from Continuing Operations with a Loss from Discontinued Operations and NOL Carryforward
• Indefinite Reinvestment Assertion
• Various COVID Impacts and Applications

Learning Objectives

• Identify ASC 740 standard for concepts of valuation allowances, changes in tax rates, entity status, uncertainty in income taxes
• Identify considerations for valuation allowances and impairments due to COVID-19
• Recognize changes in tax rates and entity tax status due to COVID 19
• Describe accounting for uncertainty in income tax due to COVID 19
• Describe modification of limitation on business interest reporting
• Recognize the impact of COVID on indefinite reinvestment consideration
• Identify the steps with respect to deferred taxes

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Accounting (2 hours)

Program Prerequisites
Basic understanding of ASC 740.

Advance Preparation
None