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16.6 Intraperiod allocation in interim periods
Publication date: 31 Mar 2023
us Income taxes guide
ASC 740-270-45 indicates that the intraperiod allocation rules (see TX 12) should be used to allocate the interim tax provision to the various components of income in the interim financial statements. Although the “with-and-without” model is basically the same for interim and annual periods, as discussed in ASC 740-270-45-2, the allocation of tax expense or benefit for interim periods should be performed using the estimated fiscal year ordinary income and tax for ordinary income (or loss) and the year-to-date income and tax for (1) an infrequent or unusual item, (2) the gain or loss on disposal of a discontinued operation, or (3) another component of the financial statements (e.g., other comprehensive income). If more than one of the above items is present, the computation should reflect the order of precedence that will be assumed in the annual financial statements. Thus, unusual or infrequent items that are included in continuing operations will generally be considered before any items that are excluded from continuing operations.
If more than one item is excluded from continuing operations, the process outlined in ASC 740-20-45-14 should be used to apportion the remaining provision after the tax expense or benefit allocated to continuing operations is considered. This allocation process should be consistent with the process used in the annual calculation, as discussed in TX 12.
16.6.1 Subsequent revisions of intraperiod allocation
Tax attributed to financial statement components that are reported in an early quarter can be subsequently revised to reflect a change in the estimate of tax related to annual ordinary income or changes in year-to-date income or loss in other components. ASC 740-270 requires the computation of the interim provision to be performed on a year-to-date basis. As a result, the tax provision for a given quarter equals the difference between the year-to-date provision calculated via the estimated annual ETR approach (plus the impact of discrete items) less the cumulative provision recorded as of the end of the prior interim period. Changes in circumstances from quarter to quarter might make it necessary to record the tax effects in a financial statement category that differs from the one in which the company recorded the tax effects during a previous quarter. The goal of the ASC 740-270 model is to treat the interim periods as integral components of the current annual period consistent with the broad principles of ASC 270. As a result, the intraperiod allocation, like the estimated annual ETR, must be updated and recomputed each quarter.
16.6.2 Restatement of interim periods for discontinued operations
Once operations are classified as discontinued, all prior periods are restated in the income statement. ASC 740-270-45-6 through ASC 740-270-45-8 provides detailed rules for taking the tax previously assigned to ordinary income and allocating it between the recomputed ordinary income and the discontinued operations in the periods prior to the date the operations are considered discontinued.
Consistent with the approach described in ASC 740-270-55-29 (Example 4) for recasting retrospective periods, when a reporting entity has ongoing operations that are classified as discontinued operations (i.e., the business classified as discontinued operations has not yet been disposed of and continues to operate), the reporting entity should apply a with-and-without intraperiod tax calculation to account for the tax effects of the ongoing operations of the discontinued business which are then reported discretely for each interim period. This appropriately allocates the estimated full year income tax provision for discontinued operations to each interim period.
See TX 12.5.2 for a more detailed discussion about intraperiod allocation issues related to discontinued operations.
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