In the single dataset approach, Return to Provision true-up adjustments for Prior Periods are entered in the Current Period’s Dataset. There are pros and cons to this approach.
Pros
• | A minimal amount of information is needed. |
• | All information is in the same dataset. |
Cons
• | Adjustments to temporary differences display in the effective tax rate report twice netting to zero. |
• | The true-up to the current tax expense requires that the tax adjustment be manually calculated to ensure that the correct current tax rate is used. |
• | The state deferred expense is trued up, but state tax adjustments are not. |
• | If there is a change in the deferred rates for prior years, the true-up includes the impact of the true-up and the change in rate. |
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 true-up as a tax adjustment code starting with NC_, so that results are represented after the cash provision total.
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 tax expense and taxes payable true-up can be achieved by entering the true-up as a tax adjustment code starting with NC_, so that the results are represented after the cash provision total. |
• | The deferred tax expense and deferred tax asset/liability true-up can be achieved by entering the true-up as a deferred only temporary difference. |
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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