A critical analysis of the procedure for the allocation of income taxes. Part I

The aim of this article is to critically analyse the procedure of income tax allocation since its inception in the USA in the 1930s-1940s. The relevance of the study is determined by the fact that the procedure of inter-period allocation continues to be theoretically unsound for more than 60 years. When the Committee on Accounting Procedures (CAP) defined income taxes as expenses in 1944, the corresponding position has been used in all subsequent standards, including modern ones. However, there are no solid arguments regarding the qualification of income taxes as expenses. The first part of this article characterises the approaches to income tax allocation in the 1930s-1960s. Five allocation concepts (no allocation, liability concept, net-of-tax concept, deferred concept, capital contribution concept) are highlighted. It is shown that at the time of G. Black's research for the AICPA none of them had a solid theoretical foundation. Since the expense/revenue approach was prevalent in the US prior to the creation of the FASB, the only concept that was conveniently matching revenue and expense was the deferred concept. It is concluded that these five concepts have not been rigorously reviewed by anyone subsequently, and that the contradictions underlying them have been carried over from standard to standard. In 1992, the FASB adopted SFAS No. 109, Accounting for Income Taxes, which changed the "allocation basis" of income taxes and began to regulate the liability concept. But it also proved to be a convenient "tweak" to the asset/liability approach, which will be characterised in more detail in the second part of the study. The author declares no conflicts of interests.