Hugo Nurnberg

Publication Date



This paper examines a long-standing controversy about the conceptual nature of the corporate income tax: whether it is an expense, a loss, a distribution of income, or some anomalous item. That controversy reflects in part different theories of the accounting entity. Despite several authoritative pronouncements stating or implying that the tax is an expense, and despite an extensive discussion in the academic and professional literature, the controversy has never been fully resolved. Additionally, the tax is not characterized as an expense in corporate financial reports. The FASB's conceptual framework does not resolve this controversy, nor does the impending joint FASB-IASB revised conceptual framework. Within the context of a coalesced (or fused) proprietary-entity theory of the accounting entity, this paper leads to the unsurprising conclusion that the corporate income tax is an expense, albeit an expense with some remarkable characteristics. Additionally, this paper shows how the conceptual nature of the corporate income tax impacts its income statement and cash flow statement reporting, and how a better understanding of this conceptual controversy might preclude fruitless controversies over other accounting issues currently troubling accountants and accounting standard setters.



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