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 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]