On Discounting Deferred Income Taxes‪.‬

ABSTRACT This paper revisits the debate over whether the tax effects of temporary timing differences between pretax accounting income and taxable income should be discounted. The paper provides an overview of the history of that debate, identifies the conditions under which discounting is appropriate in current practice, and examines the extent to which the tax effects of four important types of timing difference satisfy those conditions. The paper concludes that discounting is conceptually inappropriate when revenues and expenses appear in the tax return before they appear in the financial statements. It further concludes that, while discounting is conceptually appropriate when revenues and expenses appear in the financial statements before they appear in the tax return, in most cases it will be unnecessary because the difference between discounted and undiscounted measures of the tax effects will usually be immaterial.