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In the multiple dataset approach, the Return to Provision true-up adjustments for prior periods are entered in a separate dataset. The true-up dataset is layered with the current year's activity in another dataset in a reporting dataset to show the total current provision. There are pros and cons to this approach.
Pros
| • | The system automatically calculates the current expense. |
| • | The amount is recalculated if items change. |
| • | Permanent adjustments flow from federal to state. Therefore, the state current expense is automatically calculated. |
| • | Information is isolated from the current year provision. |
| • | Adjustments to temporary differences do not display in the effective rate report. |
Cons
| • | There are multiple datasets that need to be managed, including appropriate tax rates. |
| • | Deferred tax assets/liabilities balances need to be migrated from the true-up dataset. If not, balances will be in two different datasets. Balances can be merged using the dataset combine feature when creating a new dataset. |
| • | To view reports for the current year provision, be sure you are looking at the appropriate dataset(s). The dataset view needs to be adjusted to view the separate true-up dataset, the current year's provision dataset, and the reporting dataset with the total current year's data. |
Note: Each true-up item needs to be entered in a dataset.
Permanent Differences and Tax Adjustments
| • | The true-up for these items should impact the current tax expense and the taxes payable. This can be achieved by entering the permanent true-up amount as a permanent difference with an R tag and tax adjustments. |
| • | The impact to the current tax expense is computed based on statutory rates. |
Temporary and After Tax Temporary Differences
| • | The true-up for these items should impact the deferred and current tax expense, the deferred tax asset/liability and the taxes payable. |
| • | The current and deferred tax expense, deferred tax asset/liability and taxes payable true-up can be achieved by entering the true-up amount as activity with an R tag. |
| • | The impact to the current and deferred tax expense is computed based on statutory rates. |
Net Operating Losses
If the true up is to a year in which the provision was in a Net Operating Loss position, the NOL should be offset, instead of the taxes payable account.
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