FASB / IASB - Tax considerations under revenue recognition standard 

March 6:   The FASB and IASB project, to achieve a converged revenue recognition standard, could produce significant changes as to how some entities recognize revenue which, in turn, could affect both the calculation of and financial reporting for income taxes.

Tax accounting

U.S. federal income tax law contains specific rules for revenue recognition for certain items—such as income from long-term contracts, advance payments for goods and services sold to domestic entities, and informational reporting for foreign subsidiaries.


For tax purposes, an entity must determine whether the transaction is a service, sale, license, or lease transaction. The Internal Revenue Code generally treats differently the income derived from each of these transactions. In some circumstances, the Code requirement coincides with a taxpayer’s financial reporting treatment. If so, the taxpayer simply uses the same revenue recognition method such as recognition on shipment or completed contract for both tax and financial reporting. The effect on taxable income for state tax purposes will generally follow federal tax laws.


The Code does not require an entity to maintain its accounting records using a specific method of accounting—such as U.S. GAAP—to determine taxable income. Rather, adjustments are made to the financial reporting records to calculate income for tax purposes. However, changing an accounting method for financial reporting may result in the current federal tax accounting method no longer being permissible in some instances. In other instances, an entity may choose to voluntarily change its tax accounting method when its financial reporting changes.


Read a March 2013 report [PDF 139 KB] prepared by KPMG LLP, describing situations that may result in a change in tax accounting methods: Defining Issues: The Revenue Recognition Project: Tax Considerations



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