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The effect of a change in the beginning-of-the-year balance of a valuation allowance that results from a change in circumstances that causes a change in judgment about the realizability of the related deferred tax asset in future years ordinarily shall be included in income from continuing operations. The only exceptions are changes to valuation allowances of certain tax benefits that are adjusted within the measurement period as required by paragraph 805-740-45-2 related to business combinations and the initial recognition (that is, by elimination of the valuation allowances) of tax benefits related to the items specified in paragraph 740-20-45-11(c) through (f). The effect of other changes in the balance of a valuation allowance are allocated among continuing operations and items other than continuing operations as required by paragraphs 740-20-45-2 and 740-20-45-8.
The effect of a change in a valuation allowance for an acquired entity’s deferred tax asset shall be recognized as follows:
Topic | Reference |
Impact of tax law change on valuation allowances | |
Acquired deferred tax assets and changes to the valuation allowance required at the time of acquisition | |
Changes in the acquirer’s valuation allowance due to an acquisition | |
Valuation allowance and transactions with shareholders | |
Change in the valuation allowance as a result of a common control transaction | |
Intraperiod allocation for changes in valuation allowances | |
Restating prior-period presentation and intraperiod allocation for discontinued operations when there is a change in the beginning-of-the-year valuation allowance that results from a change in assessment about future realizability of deferred tax assets | |
Changes in valuation allowance due to NOL carryforward limitations after an initial public offering | |
Changes in valuation allowance in spin-off transactions |
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