Sec. 32.22  Comprehensive interperiod tax allocation.

    (a) Companies shall apply interperiod tax allocation (tax 
normalization) to all book/tax temporary differences which would be 
considered material for published financial report purposes. 
Furthermore, companies shall also apply interperiod tax allocation if 
any item or group of similar items when aggregated would yield debit or 
credit entries which exceed or would exceed 5 percent of the gross 
deferred income tax expense debits or credits during any calendar year 
over the life of the

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temporary difference. The tax effects of book/tax temporary differences 
shall be normalized and the deferrals shall be included in the following 
accounts:

4100, Net Current Deferred Operating Income Taxes;
4110, Net Current Deferred Nonoperating Income Taxes;
4340, Net Noncurrent Deferred Operating Income Taxes;
4350, Net Noncurrent Deferred Nonoperating Income Taxes.

    In lieu of the accounting prescribed herein, any company shall treat 
the increase or reduction in current income taxes payable resulting from 
the use of flow through accounting in prior years as an increase or 
reduction in current tax expense.
    (b) Supporting documentation shall be maintained so as to separately 
identify the amount of deferred taxes which arise from the use of an 
accelerated method of depreciation.
    (c) Subsidiary records shall be used to reduce the deferred tax 
assets contained in the accounts specified in paragraph (a) of this 
section when it is likely that some portion or all of the deferred tax 
asset will not be realized. The amount recorded in the subsidiary record 
should be sufficient to reduce the deferred tax asset to the amount that 
is likely to be realized.
    (d) The records supporting the activity in the deferred income tax 
accounts shall be maintained in sufficient detail to identify the nature 
of the specific temporary differences giving rise to both the debits and 
credits to the individual accounts.
    (e) Any company that uses accelerated depreciation (or recognizes 
taxable income or losses upon the retirement of property) for income tax 
purposes shall normalize the tax differentials occasioned thereby as 
indicated in paragraphs (e)(1) and (e)(2) of this section.
    (1) With respect to the retirement of property the book/tax 
difference between (i) the recognition of proceeds as income and the 
accrual for salvage value and (ii) the book and tax capital recovery, 
shall be normalized.
    (2) Records shall be maintained so as to show the deferred tax 
amounts by vintage year separately for each class or subclass of 
eligible depreciable telephone plant for which an accelerated method of 
depreciation has been used for income tax purposes. When property is 
transferred to nonregulated activities, the associated deferred income 
taxes and unamortized investment tax credits shall also be identified 
and transferred to the appropriate nonregulated accounts.
    (f) The tax differentials to be normalized as specified in this 
section shall also encompass the additional effect of state and local 
income tax changes on Federal income taxes produced by the provision for 
deferred state and local income taxes for book/tax temporary differences 
related to such income taxes.
    (g) Companies that receive the tax benefits from the filing of a 
consolidated income tax return by the parent company, (pursuant to 
closing agreements with the Internal Revenue Service, effective January 
1, 1966) representing the deferred income taxes from the elimination of 
intercompany profits for income tax purposes on sales of regulated 
equipment, may credit such deferred taxes directly to the plant account 
which contains such intercompany profit rather than crediting such 
deferred taxes to the applicable accounts in paragraph (a) of this 
section. If the deferred income taxes are recorded as a reduction of the 
appropriate plant accounts, such reduction shall be treated as reducing 
the original cost of the plant and accounted for as such.
[ 51 FR 43499 , Dec. 2, 1986, as amended at  59 FR 9418 , Feb. 28, 1994]