3. Amend paragraph 740-10-15-4, with a link to transition paragraph 740-1065-8, as follows:

740-10-15-4 The guidance in this Topic does not apply to the following transactions and activities:

See the guidance in paragraphs 740-10-55-72 through 55-74 dealing with determining whether a payment made to a taxing authority based on dividends distributed is an income tax.

4. Amend paragraph 740-10-25-54, with a link to transition paragraph 740-1065-8, as follows:

740-10-25-53 Transactions directly between a taxpayer and a government (in its capacity as a taxing authority) shall be recorded directly in income (in a manner similar to the way in which an entity accounts for changes in tax laws, rates, or other tax elections under this Subtopic). (See Example 26 [paragraph 740-10-55-202] for an illustration of a transaction directly with a governmental taxing authority.)

740-10-25-54 An entity shall determine whether a step up in the tax basis of goodwill relates to the business combination in which the book goodwill was originally recognized or whether it relates to a separate transaction. In situations in which the tax basis step up relates to the business combination in which the book goodwill was originally recognized

that was previously not deductible

, no deferred tax asset would be recorded for the increase in basis except to the extent that the newly deductible goodwill amount exceeds the remaining balance of book goodwill. In situations in which the tax basis step up relates to a separate transaction, a deferred tax asset would be recorded for the entire amount of the newly created tax goodwill in accordance with this Subtopic. Factors that may indicate that the step up in tax basis relates to a separate transaction include, but are not limited to, the following:

5. Add paragraph 740-10-30-27A, with a link to transition paragraph 740-10-65-8, as follows:

740-10-30-27 The consolidated amount of current and deferred tax expense for a group that files a consolidated tax return shall be allocated among the members of the group when those members issue separate financial statements. This Subtopic does not require a single allocation method. The method adopted, however, shall be systematic, rational, and consistent with the broad principles established by this Subtopic. A method that allocates current and deferred taxes to members of the group by applying this Topic to each member as if it were a separate taxpayer meets those criteria. In that situation, the sum of the amounts allocated to individual members of the group may not equal the consolidated amount. That may also be the result when there are intra-entity transactions between members of the group. The criteria are satisfied, nevertheless, after giving effect to the type of adjustments (including eliminations) normally present in preparing consolidated financial statements.

740-10-30-27A An entity is not required to allocate the consolidated amount of current and deferred tax expense to legal entities that are not subject to tax. However, an entity may elect to allocate the consolidated amount of current and deferred tax expense to legal entities that are both not subject to tax and disregarded by the taxing authority (for example, disregarded entities such as single-member limited liability companies). The election is not required for all members of a group that files a consolidated tax return; that is, the election may be made for individual members of the group that files a consolidated tax return. An entity shall not make the election to allocate the consolidated amount of current and deferred tax expense for legal entities that are partnerships or are other pass-through entities that are not wholly owned.

6. Add paragraph 740-10-50-17A, with a link to transition paragraph 740-10-65-8, as follows:

740-10-50-17 An entity that is a member of a group that files a consolidated tax return shall disclose in its separately issued financial statements:

7. Amend paragraphs 740-10-55-26 and 740-10-55-139 through 55-144, with a link to transition paragraph 740-10-65-8, as follows:

740-10-55-26 Local (including franchise) taxes based on income are within the scope of this Topic. A tax, to the extent it is based on capital, is a

franchise

non-income-based tax. As indicated in paragraph 740-10-15-4(a), if there is an

additional tax

amount of a franchise tax based on income, that

excess

amount is considered an income tax. Any additional amount incurred is considered a non-income-based tax. An

A historical

example that illustrates this guidance is presented in Example 17 (see paragraph 740-10-55-139).

740-10-55-139 The guidance in paragraph 740-10-55-26 addressing when a tax is an income tax is illustrated using the following

historical

example.

740-10-55-140

In August 1991, a state amended its franchise tax statute to include a tax on income apportioned to the state based on the federal tax return. The new tax was effective January 1, 1992. The amount of

A state’s franchise tax on each corporation is

was

set at the greater of 0.25 percent of the corporation’s net taxable capital and 4.5 percent of the corporation’s net taxable earned surplus. Net taxable earned surplus is

was

a term defined by the tax statute for federal taxable income.

740-10-55-141 In this Example, the

total computed tax is an income tax only to the extent that the tax exceeds the capital-based tax in a given year

amount of franchise tax equal to the tax on the corporation’s net taxable earned surplus is an income tax.

740-10-55-142

A deferred tax liability is

Deferred tax assets and liabilities are required to be recognized under this Subtopic for the

amount by which the income-based tax payable on net reversing

temporary differences that exist as of the date of the statement of financial position using the tax rate to be applied to the corporation’s net taxable earned surplus (4.5 percent)

in each future year exceeds the capital-based tax computed for each future year based on the level of capital that exists as of the end of the year for which deferred taxes are being computed

.

740-10-55-143 The portion of the

current tax liability based on income is required to be accrued with a charge to income

total computed franchise tax that exceeds the amount equal to the tax on the corporation’s net taxable earned surplus should not be presented as a component of income tax expense during

the

any period in which the total computed franchise tax exceeds the amount equal to the tax on the corporation’s net taxable earned surplus.

income is earned. The portion of the deferred tax liability related to temporary differences is required to be recognized as of the date of the statement of financial position for temporary differences that exist as of the date of the statement of financial position.

740-10-55-144

Because the state tax is an income tax only to the extent that the tax exceeds the capital-based tax in a given year, under the requirements of this Subtopic, deferred taxes are recognized for temporary differences that will reverse in future years for which annual taxable income is expected to exceed 5.5% (.25% of net taxable capital/4.5% of taxable income) of expected net taxable capital. In measuring deferred taxes, see paragraph 740-10-55-138 to determine whether a detailed analysis of the net reversals of temporary differences in each future year is warranted.

While the tax statutes of states or other jurisdictions differ, the accounting described in paragraphs 740-10-55-140 through 55-143

above

would be appropriate if the tax structure of another state or jurisdiction was essentially the same as in this Example.

8. Add paragraph 740-10-65-8 and its related heading as follows: