AuthorTopic: Tax base of a liability
kimmie9
@2017-04-01 10:33:29
Donations: ES company made donations of $100,000 in the current fiscal year. The donations were expensed for financial reporting purposes, but are not tax deductible based on applicable tax legislation.

The book states that the carrying amount is $0 (which makes sense, as the book states that donations were expensed for financial reporting purposes) but it then goes on to state that: "tax legislation does not allow donations to be deducted for tax purposes, so the tax base of the donations equals the carrying amount." I don't understand why this is.
himself
@2017-04-05 22:00:15
The tax base of an asset is the amount that will become an expense (or a detrement) in the future, usually through depreciation.

The tax base of a liability is the amount that will become a revenue (or a benefit) in the future.

Suppose that you donated $100,000, but that tax rules limit your annual deduction to $20,000. Then the first year you deduct $20,000 on your tax return, and your tax base is $80,000: four more years of deductions (benefits).

Here, you're not allowed to deduct the $100,000 at all, so your future benefit is zero, so your tax base is zero. That's what they were trying to say. (The fact that it equals the carrying amount is coincidental; they made it sound as if it were consequential.)

CFA Discussion Topic: Tax base of a liability

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