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55 Tax L. Rev. 175 (2001-2002)
The Relation between Financial and Tax Reporting Measures of Income

handle is hein.journals/taxlr55 and id is 185 raw text is: The Relation Between Financial and Tax Reporting Measures of Income GIL B. MANZON, JR.* AND GEORGE A. PLESKO** TABLE OF CONTENTS I. Introduction ............................................ 176 II. Foundations of Income Measurement ................... 178 A. Financial Accounting ............................... 178 B. Tax Accounting ..................................... 180 C. Sources of Differences and Related Accounting Issues ............................................... 181 III. Financial Reporting of Taxes Under SFAS 109 ......... 182 IV. M ethodology ............................................ 184 A. Potential Data Sources .............................. 184 1. Tax Return Data ................................ 184 2. Financial Accounting Data ...................... 187 B. Using Financial Statements to Infer Taxable Incom e ............................................. 188 1. Estimating Current Taxes and Taxable Income. 188 a. Differences in the Reporting Entity ........ 189 b. Operating Losses ........................... 189 c. Nonqualified Stock Option Compensation.. 190 2. Estimating the Difference Between Financial Reporting Income and Taxable Income ......... 192 3. Limitations of the SPREAD Measure .......... 193 4. Factors Likely to Affect the SPREAD ......... 194 a. Tax-Favored Investment and Financing A ctions ..................................... 194 i. Profitability ............................. 194 ii. Presence of NOLs ...................... 194 iii. Change in Net Sales .................... 195 Carroll School of Management, Boston College. The American Tax Policy Institute provided financial support for this Article. Views expressed in this Article are those of the authors, and do not necessarily represent those of the ATPI or any of its members. We have benefited from discussions with or comments from Jackie Levinson, Deborah Schenk, Terry Shevlin, Janet Spragens, Marty Sullivan, Roger Wheeler, G. Peter Wilson, George Yin, and participants at the January 2001 American Tax Policy Institute Roundtable. We would like to thank Rebecca Zarutskie and Xu Li for exceptional research support. Any errors are the responsibility of the authors. Sloan School of Management, Massachusetts Institute of Technology. 175 Imaged with the Permission of N.Y.U. Tax Law Review

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