Summary of Interpretation No. 25

Accounting for an Unused Investment Tax Credit—an interpretation of APB Opinions No. 2, 4, 11, and 16


This Interpretation concerns recognition of investment tax credits in computing financial statement provisions for income tax expense. An investment tax credit should be recognized to the extent that the credit would have been realized on the tax return if taxes payable had been based on pretax accounting income. Any remaining available investment tax credit should be recognized to the extent that existing net deferred tax credits would reverse during the investment tax credit carryforward period, subject to limitations. The credit should not be recognized simply because the enterprise believes that future realization of the benefit is assured beyond a reasonable doubt.

The Interpretation also addresses the accounting for investment tax credits existing in an acquired company at the time of a business combination accounted for by the purchase method. If those investment tax credits are subsequently realized on the tax return, goodwill should be reduced by an equivalent amount until it is reduced to zero. Any additional amounts realized should be applied to reduce specified noncurrent assets until they are reduced to zero. Any remaining amount realized should be recorded as a deferred credit and amortized to income over a period not to exceed 40 years.