The Interperiod Allocation of Corporate Income Taxes: A Proposal.

Abstract The problem of interperiod income tax allocation is not a new one. As early as 1944, the Committee on Accounting Procedure of the American Institute of Accountants recommended that, "where an item resulting in a material reduction in income taxes is charged to or carried forward in a deferred charge account, or to a reserve account, it is desirable to include a charge in the income statement of an amount equal to the tax reduction." In the intervening two decades of discussion and debate no clear consensus has emerged regarding the "fundamental questions about the nature of income tax and the validity of the concept of interperiod income tax allocation." When income tax is allocated today, it is current practice to approach the problem on an asset by asset basis. Tax deferments arising from the difference between the accelerated depreciation claimed as a deduction for tax purposes and the amount of depreciation charged for accounting purposes in the income statement are recorded at their current nominal amount. Accountants generally have rejected the idea of discounting deferred tax liabilities, usually on the grounds that it is not current accounting practice to record present values; an exception should not be made in the case of deferred taxes.