Question

FASB does not require present value concepts to be applied to the accounting for income taxes. Why do you think that is?

Answer 1

Accounting for income taxes accounts for the current year taxes based on taxable income and deferred taxes for the timing differences. The timing difference can lead to deferred tax asset or deferred tax liability which is calculated based on future enacted tax laws rate. If there is increase in future tax liability it will give deferred tax liability for example: claiming higher depreciation for taxation. If there is decrease in future tax liability it will give deferred tax asset. For example: taxation of income received in advance.

The purpose of accounting for deferred tax is to match the accounting income with accounting taxes. Hence this is in line with matching principle. On the other hand, present value application is usually done for situation which involves future money payouts like lease, notes payable etc. Hence conceptually present value is no applied in accounting for income taxes. The deferred taxes are just accounted based on enacted income tax rates for timing difference items.