What is an intraperiod tax allocation?

An intraperiod tax allocation is the allocation of income taxes to different parts of the results appearing in the income statement of a business, so that some items are stated net of tax. This situation arises in the following cases:

• Continuing operations (results of) are presented net of tax
• Discontinued operations are presented net of tax
• Extraordinary items are presented net of tax
• Prior period adjustments are presented net of tax
• The cumulative effect of a change in accounting principle is presented net of tax

The intraperiod tax allocation concept is used to reveal the "true" results of certain transactions net of all effects, rather than disaggregating them from income taxes. The reason for using intraperiod tax allocations is to improve the quality of information presented to the readers of financial statements.

For example, ABC International records an extraordinary gain of $1 million. Its tax rate is 35%, so it reports the extraordinary gain net of taxes, at $650,000.

Note that, though the income tax included in these net calculations is usually an expense, it may also be a credit, so that any of the preceding items presented net of tax would include the tax credit.

Most elements of the income statement are not presented net of the intraperiod tax allocation. For example, revenues, the cost of goods sold, and administrative expenses are not presented net of income taxes.

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