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Contains verified DTA/DTL item tables with typical sources (MACRS, accrued liabilities, NOL/credit carryforwards, Section 174 capitalization), valuation allowance evidence framework (positive/negative weighting, 3-year cumulative loss test), and uncertain tax position two-step recognition/measurement process with cumulative probability examples. ASC 740 income tax provision, current/deferred tax expense, temporary differences, enacted rate measurement, ETR reconciliation, FIN 48, EAETR quarterly methodology, ASC 740-270 discrete items, ASU 2015-17 balance sheet classification. Consult when computing income tax expense for a C-corp, measuring or remeasuring deferred tax assets and liabilities after a rate change, assessing whether a valuation allowance is needed, reconciling effective vs statutory tax rate, evaluating uncertain tax positions, calculating quarterly interim provisions, posting provision journal entries, preparing tax footnote disclosures, or reviewing a target's tax provision for M&A due diligence.
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Operational skill for computing, recording, and disclosing income tax expense under
Operational skill for computing, recording, and disclosing income tax expense under ASC 740 for C-corporations. The provision has two components: current tax expense (taxes payable for the year based on taxable income) and deferred tax expense (future tax consequences of temporary differences between book and tax basis). Total income tax expense = current + deferred.
Follow these steps in sequence. Each step depends on the prior step's output.
Compare the book carrying amount (financial statements) to the tax basis (tax return) of every asset and liability. Classify each difference as taxable or deductible.
Taxable temporary differences (create DTL) -- book basis of asset exceeds tax basis, OR book basis of liability is less than tax basis. These produce taxable amounts in future years when the asset is recovered or the liability settles.
Deductible temporary differences (create DTA) -- book basis of asset is less than tax basis, OR book basis of liability exceeds tax basis. These produce deductible amounts in future years.
Permanent differences do not create DTA/DTL -- they affect only the rate reconciliation. Common permanent items: 50% meals disallowance (IRC 274), 100% entertainment disallowance post-TCJA, penalties/fines (IRC 162(f)), federal income tax expense, tax-exempt interest, dividends received deduction (IRC 243), officer life insurance premiums (IRC 264).
Multiply each temporary difference by the enacted tax rate expected to apply when the difference reverses.
Post-TCJA federal rate: 21% flat (no graduated brackets for C-corps). State rate varies by jurisdiction (Florida: 5.5% on apportioned income over $50,000 exemption). Compute a combined rate as federal + state net of federal benefit, or use a blended rate for multi-state entities.
Rate change rule: When a rate change is enacted, remeasure all existing DTA/DTL at the new rate in the period of enactment. The adjustment flows through income tax expense that period. Do not use proposed but unenacted rates.
Scheduling: For flat-rate jurisdictions (federal post-TCJA), scheduling is unnecessary -- all differences reverse at 21%. For graduated-rate or rate-change jurisdictions, schedule each difference's reversal by year to apply the correct rate.
Assess whether it is "more likely than not" (>50% likelihood) that some or all of the DTA will not be realized. If so, record a valuation allowance contra-asset to reduce the DTA to the realizable amount.
Positive evidence (supports realization):
Negative evidence (weighs against realization):
Weighting: Objectively verifiable evidence (contracts, historical earnings) receives greater weight than projections. Negative evidence generally requires proportionally stronger positive evidence to overcome.
This is one of the most significant judgment areas in financial reporting. It directly impacts net income and carries restatement risk. Document the analysis regardless of the conclusion reached.
Current tax expense = taxable income x enacted rate, adjusted for credits.
Start the provision workpaper with book income, adjust for permanent and temporary differences to arrive at taxable income, then apply the statutory rate.
Federal: Taxable income x 21% State: State-apportioned taxable income x state rate Credits: R&D credit (IRC 41), foreign tax credit (IRC 901), general business credits -- reduce current tax payable dollar-for-dollar
Invoke tax-prep:form-1120-prep for the full book-to-taxable-income reconciliation
workflow and Form 1120 Schedule J tax computation.
Reconcile the statutory rate (21% federal) to the effective tax rate (total income tax expense / pre-tax book income). Each item explains a basis-point difference.
Common reconciliation items:
Disclosure rule: Each item exceeding 5% of the statutory rate amount must be separately disclosed (ASC 740-10-50-12). The rate reconciliation is closely scrutinized by auditors.
Formerly FIN 48. Apply a two-step process to every tax position taken or expected to be taken on a return.
Step A -- Recognition: Does the position meet the "more likely than not" threshold (>50% sustained on examination) based solely on technical merits? Consider tax law, regulations, case law, IRS rulings, and experience with similar positions. If yes: recognize the benefit. If no: record a liability for the full tax effect.
Step B -- Measurement: For recognized positions, measure at the largest amount with >50% cumulative probability of being realized upon ultimate settlement. List possible outcomes, assign probabilities, find the largest amount where cumulative probability exceeds 50%.
Interest and penalties: ASC 740-10-45-25 permits a policy election to classify as income tax expense or a separate line item. The election must be disclosed and applied consistently.
UTP disclosures (ASC 740-10-50):
Estimated Annual Effective Tax Rate (EAETR): At each interim period, estimate the full-year ETR and apply it to year-to-date ordinary income. The EAETR includes estimated annual pre-tax income, anticipated permanent differences, projected credits, and expected VA changes related to ordinary income.
Discrete items -- recognized entirely in the quarter they occur, not spread through EAETR: enacted law changes, VA judgment changes, return-to-provision true-ups, unusual/infrequent items, UTP settlements.
Interim formula: Quarter tax expense = (YTD ordinary income x EAETR) - tax expense recognized in prior quarters + current quarter discrete items.
DTL items:
DTA items:
Invoke tax-prep:nol-tracking for NOL deferred tax asset carryforward tracking,
utilization schedules, and Section 382 limitation analysis.
Current provision: Debit Income Tax Expense (9000s/9100s), credit Income Tax Payable. Split federal and state into separate entries for clarity.
Deferred provision: Debit/credit Deferred Tax Asset or Deferred Tax Liability with corresponding debit/credit to Deferred Income Tax Expense (9200s). Net DTA increase = deferred tax benefit (reduces total expense). Net DTL increase = deferred tax expense (increases total expense).
Valuation allowance: Credit Valuation Allowance (contra-asset to DTA), debit Income Tax Expense.
Balance sheet classification: All deferred tax is noncurrent under ASU 2015-17 (effective for all entities 2017+). Present net DTA or net DTL per jurisdiction on the balance sheet -- do not offset across jurisdictions.
Quarterly entries: Post adjusting entries each quarter using the EAETR and true up at year-end when the return is filed. The income tax expense per GL should tie to the provision workpaper; any difference indicates a posting error.
Invoke accounting-foundation:financial-statements for GAAP balance sheet and P&L
presentation requirements for income tax accounts.
Read these for deeper detail:
references/tax-provision-asc740.md -- Full ASC 740 operational reference. Covers all six provision steps with C-corp examples, DTA/DTL item tables with typical sources, valuation allowance evidence framework (positive/negative weighting, 3-year cumulative loss test), rate reconciliation line items, uncertain tax position two-step process with cumulative probability measurement, quarterly EAETR methodology with discrete item rules, accounting system integration notes for posting provision entries, and authoritative ASC/IRC citations. Read when you need the detailed DTA/DTL item lookup table, the valuation allowance evidence checklist, the UTP disclosure requirements, or the quarterly interim calculation formula.For tax return computation details:
tax-prep:form-1120-prep for book-to-taxable-income reconciliation, M-1/M-3 adjustments, Schedule J tax computation, and permanent/temporary difference identification that feeds the provisiontax-prep:tax-planning for tax planning strategies (timing of deductions, credit optimization, entity structuring) that affect provision estimates and valuation allowance assessmenttax-prep:nol-tracking for NOL carryforward schedules, utilization projections, Section 382 limitations, and DTA measurement for loss carryforwardsFor GAAP presentation:
accounting-foundation:financial-statements for income statement tax expense line presentation (current + deferred components), balance sheet DTA/DTL classification (noncurrent per ASU 2015-17), cash flow deferred tax add-back, and tax footnote disclosure requirementsfinancial-planning:financial-modeling -- ETR drives after-tax projections in 3-statement models and scenario analysisfinancial-planning:strategic-advisory -- tax provision impacts M&A due diligence and capital allocation decisionsbookkeeping:monthly-close -- provision journal entries are part of the adjusting entry phasetax-prep:form-1120-prep -- provision workpaper reconciles to the filed return (return-to-provision true-up)npx claudepluginhub aeyeops/aeo-basis-plugin-marketplace --plugin financial-planningAdvisory reference for multi-jurisdiction income tax provision under ASC 740 and IAS 12. Covers deferred taxes, valuation allowances, uncertain tax positions, Pillar Two, ETR reconciliation, and local GAAP variations.
Guides tax preparation client communications with federal deadlines, entity-specific requirements (Sole Prop, S-Corp, Partnership, C-Corp), deduction guidance, and estimated payment rules.
Calculates annual depreciation for business assets using MACRS schedules, Section 179 expensing, and bonus depreciation. Generates Form 4562 schedules from transaction searches.