§ 32.22   Comprehensive interperiod tax allocation.

   (a) Companies shall apply interperiod tax allocation (tax
   normalization) to all book/tax temporary differences which would be
   considered material for published financial report purposes.
   Furthermore, companies shall also apply interperiod tax allocation if
   any item or group of similar items when aggregated would yield debit or
   credit entries which exceed or would exceed 5 percent of the gross
   deferred income tax expense debits or credits during any calendar year
   over the life of the temporary difference. The tax effects of book/tax
   temporary differences shall be normalized and the deferrals shall be
   included in the following accounts:

   4100, Net Current Deferred Operating Income Taxes;

   4110, Net Current Deferred Nonoperating Income Taxes;

   4340, Net Noncurrent Deferred Operating Income Taxes;

   4350, Net Noncurrent Deferred Nonoperating Income Taxes.

   In lieu of the accounting prescribed herein, any company shall treat
   the increase or reduction in current income taxes payable resulting
   from the use of flow through accounting in prior years as an increase
   or reduction in current tax expense.

   (b) Supporting documentation shall be maintained so as to separately
   identify the amount of deferred taxes which arise from the use of an
   accelerated method of depreciation.

   (c) Subsidiary records shall be used to reduce the deferred tax assets
   contained in the accounts specified in paragraph (a) of this section
   when it is likely that some portion or all of the deferred tax asset
   will not be realized. The amount recorded in the subsidiary record
   should be sufficient to reduce the deferred tax asset to the amount
   that is likely to be realized.

   (d) The records supporting the activity in the deferred income tax
   accounts shall be maintained in sufficient detail to identify the
   nature of the specific temporary differences giving rise to both the
   debits and credits to the individual accounts.

   (e) Any company that uses accelerated depreciation (or recognizes
   taxable income or losses upon the retirement of property) for income
   tax purposes shall normalize the tax differentials occasioned thereby
   as indicated in paragraphs (e)(1) and (e)(2) of this section.

   (1) With respect to the retirement of property the book/tax difference
   between (i) the recognition of proceeds as income and the accrual for
   salvage value and (ii) the book and tax capital recovery, shall be
   normalized.

   (2) Records shall be maintained so as to show the deferred tax amounts
   by vintage year separately for each class or subclass of eligible
   depreciable telephone plant for which an accelerated method of
   depreciation has been used for income tax purposes. When property is
   transferred to nonregulated activities, the associated deferred income
   taxes and unamortized investment tax credits shall also be identified
   and transferred to the appropriate nonregulated accounts.

   (f) The tax differentials to be normalized as specified in this section
   shall also encompass the additional effect of state and local income
   tax changes on Federal income taxes produced by the provision for
   deferred state and local income taxes for book/tax temporary
   differences related to such income taxes.

   (g) Companies that receive the tax benefits from the filing of a
   consolidated income tax return by the parent company, (pursuant to
   closing agreements with the Internal Revenue Service, effective January
   1, 1966) representing the deferred income taxes from the elimination of
   intercompany profits for income tax purposes on sales of regulated
   equipment, may credit such deferred taxes directly to the plant account
   which contains such intercompany profit rather than crediting such
   deferred taxes to the applicable accounts in paragraph (a) of this
   section. If the deferred income taxes are recorded as a reduction of
   the appropriate plant accounts, such reduction shall be treated as
   reducing the original cost of the plant and accounted for as such.

   [ 51 FR 43499 , Dec. 2, 1986, as amended at  59 FR 9418 , Feb. 28, 1994]

   return arrow Back to Top