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PwC is pleased to offer this comprehensive guide on the accounting for income taxes. This guide focuses on the accounting and financial reporting considerations for income taxes. It supplements information provided by the authoritative accounting literature and other PwC guidance.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification). It also provides our insights and perspectives, interpretative and application guidance, illustrative examples, and discussion on emerging practice issues.
This guide should be used in combination with a thorough analysis of the relevant facts and circumstances, review of the authoritative accounting literature, and appropriate professional and technical advice.
References to US GAAP
Definitions, full paragraphs, and excerpts from the FASB’s Accounting Standards Codification are clearly labelled. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations are:
  • Business combinations and noncontrolling interests (BCG)
  • Consolidation and equity method of accounting guide (CG)
  • Financial statement presentation (FSP)
  • Financing transactions (FG)
  • Foreign currency (FX)
  • Property, plant, equipment and other assets (PPE)
  • Stock-based compensation (SC)
Summary of significant changes
This guide was fully updated in May 2018. In addition, select topics were updated in May 2020 and April 2019. The following is a summary of the significant changes made since it was last updated in May 2018.
Revisions to guide completed in May 2020
TX 1 , Scope of ASC 740:
  • TX 1.2 and TX 1.3.1.1 were updated to reflect new guidance as a result of ASU 2019-12, Simplifying the Accounting for Income Taxes, related to tax systems based on the greater of an income-based calculation and a non-income-based calculation.
TX 4, Recognition and measurement:
  • TX 4.3.3.8 was updated to reflect new guidance, as a result of ASU 2019-12, related to tax systems based on the greater of an income-based calculation and a non-income-based calculation.
TX 10, Business combinations:
  • TX 10.5.6 was updated to reflect the issuance of ASU 2019-12, which clarified when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized, and when it should be considered a separate transaction.
  • TX 10.5.8.1 was updated to reflect the issuance of ASU 2019-12, which removed exceptions to the general principles in ASC 740-30 that resulted in “frozen” outside basis differences for foreign equity method investments and subsidiaries.
  • The guidance in TX 10.7.5 and TX 10.7.6 related to goodwill impairment testing and the related deferred tax accounting was replaced with references to the more detailed guidance in BCG 9.
TX 11, Outside basis differences and other special areas:
  • TX 11.9.2 was updated to reflect the issuance of ASU 2019-12, which removed exceptions to the general principles in ASC 740-30 that resulted in “frozen” outside basis differences for foreign equity method investments and subsidiaries.
TX 12, Intraperiod tax allocation:
TX 14, Separate financial statements of a subsidiary:
  • TX 14.5  was updated to reflect the issuance of ASU 2019-12, which specified that an entity is not required, but may elect, to allocate income tax expense to a legal entity that is both not subject to tax and disregarded by the taxing authority.
TX 16, Accounting for income taxes in interim periods:
  • TX 16.3.4.6 was updated to reflect the issuance of ASU 2019-12,, which clarified that all effects of an enacted change in tax law or rate, both deferred and current, should be accounted for in the interim period that includes the enactment date.
  • TX 16.4.2 was updated to reflect the issuance of ASU 2019-12, which eliminated a limitation on the amount of income tax benefit that can be recognized in an interim period when a year-to-date loss exceeds the anticipated loss for the year.
  • TX 16.6.3 was updated to reflect the issuance of ASU 2019-12, which removed the exception to the basic intraperiod model described in ASC 740-20-45-7.
Revisions to guide completed in April 2019
TX 2, Objectives and basic principles:
  • TX 2.4.5 was updated to reflect changes resulting from issuance of ASU 2016-16, such that the section now only addresses the tax effects of intra-entity inventory transactions. Guidance formerly included in TX 2.4.5 for the tax effects of intra-entity transactions (other than inventory) before adoption of ASU 2016-16 was removed due to ASU 2016-16 now being effective.
TX 5, Valuation allowance:
  • TX 5.8.2.2 (Leases) was updated to address deferred tax considerations related to the adoption of ASC 842.
TX 11, Outside basis differences and other special areas:
  • TX 11.10.1 was updated to reflect additional considerations in accounting for branches as a result of the Tax Cuts and Jobs Act of 2017, including various limitations on the ability to utilize foreign tax credits.
  • TX 11.10.2 was clarified to reflect that US deferred taxes for temporary differences of a “full inclusion” subpart F subsidiary should be recorded where a company expects to consistently be a full inclusion entity. A new sentence indicates that, in circumstances where a company does not expect to consistently be a full inclusion entity, the guidance within TX 11.10.2.1 should be followed.
  • TX 11.10.3 was updated to include an acceptable model for recognizing deferred taxes related to GILTI.
TX 16, Accounting for income taxes in interim periods:
  • TX 16.5 was updated to provide examples of items which may not be estimable in determining the annual effective tax rate for interim periods.
TX 17, Income tax accounting for stock-based compensation:
  • Recent standard setting transition guidance formerly included in TX 17.1 was removed due to ASU 2016-09 now being effective.
Copyrights
This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.
The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is reproduced with permission.
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