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Accounting for ITCs generally follows the guidance in ASC 740-10-25-45 through 25-46 and 740-10-45-26 through 45-28.

ASC 740-10-25-46

While it shall be considered preferable for the allowable investment credit to be reflected in net income over the productive life of acquired property (the deferral method), treating the credit as a reduction of federal income taxes of the year in which the credit arises (the flow-through method) is also acceptable.

In accordance with this guidance, in a traditional ITC model, reporting entities may elect to recognize the ITC over the life of the related property (deferral method), similar to the grant model, or the benefit may be recognized in the year received (flow-through method). See TX 3.2.3 for further information on accounting for investment tax credits.

16.3.1 Accounting and reporting for investment tax credits

A reporting entity should follow its existing accounting policy consistent with the guidance in ASC 740-10-25-46. That is, either “flow through” the benefit to income in the tax computation during the period the benefit is generated, or defer and amortize the benefit over the life of the related property. These amounts would also be subject to analysis for uncertain tax positions under ASC 740.
In addition, similar to the recording of deferred income taxes on government grants (see UP 16.2.4), there are two acceptable approaches to provide for deferred income taxes on the book and tax basis differences created on initial recognition of the ITCs received under the American Recovery and Reinvestment Act of 2009. This decision is also an accounting policy election that should be consistently applied and disclosed.
3 Formerly Accounting Principles Board (APB) Opinion No. 2, Accounting for the “Investment Credit,” and APB Opinion No. 4 (Amending No. 2), Accounting for the “Investment Credit.”
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