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AN HISTORICAL PERSPECTIVE OF
ACCOUNTING FOR INCOME TAXES FROM 1920
THROUGH 1984
Myers, Joan K.
Le Moyne College
myersjk@lemoyne.edu
Collins, Mary K.
Le Moyne College
collinsm@lemoyne.edu
ABSTRACT
In this paper, the literature is reviewed to chronicle the development of accounting for income
taxes from 1920 through 1984. The reporting of income taxes has been a controversial topic
since the advent of taxation. This paper follows the evolution of reporting from the early taxation
years through APB 11 and the post-APB 11 environment. Specifically, opinions from both
theoreticians and practitioners are cited as the standards are developed.
INTRODUCTION
The purpose of this paper is to chronicle the regulatory and standard setting environm ent that
influenced accounting for income taxes fro m 1920 through 198 4. A historical review of the
literature encompassed not only regulatory and promulgated standards regarding accounting for
income taxes, but also the oretical articl es and the articles by pra ctitioners. Political pressures
voiced by the practitioner co mmunity that im pacted the standard setting environm ent are
highlighted.
THE EARLY YEARS (1920 – 1967)
How should income taxes be reported? That question is almost as old as the first laws instituting
a Federal Income Tax. Ini tially, income taxes were regarded as a distribution of profits. Special
Bulletin No. 1, January 1920, of the American Inst itute of Acco untants stated, “It is apparently
the theory of the governm ent that it is t aking part of the profits, t hat it is asking the taxpa yer to
share his profits with the governm ent. These taxes, therefore, are not ordinary expenses, such as
would be deducted as a matter of course determ ining t he prof its in which the manager of the
company would share,” ( Winborne and Kleespie, 1966). In 1936, the American Institu te of
Accountants, in its publication, “Examination of F inancial Statements,” then perm itted income
taxes to be shown as “other charges.” In that same year, the American Ac counting Association
(AAA) cla ssified inco me t axes as an operating e xpense. The AAA subsequently changed thi s
perspective in 1941, statin g that tax was not in the nature of an operating expense and should be
shown on the income statement only in the amount currently payable.
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