Abstract This article focuses on the income taxes and income tax allocation under the entity concept. Corporate income taxes under the entity concept are commonly viewed as a distribution of income. The following statement, by a Committee of the American Accounting Association, is a representative expression of this view. If the management does nothing, other things being equal, the reported net income for subsequent years will drop, assuming the wage rate in effect in each year is the basis for computing labor cost. Income taxes, as a cost, are subject to managerial control and reduction. From management's standpoint, an effective way to reduce income taxes is through a continual program of plant modernization. So long as it follows such a program, the amount of income tax cost will he and should be low. If and when it abandons such a program, the amount of taxes will be and should be high. The amount of income taxes, in other words, is a reflection of management's effectiveness in controlling income taxes as a cost.
David H. Li (Sat,) studied this question.