While not all-inclusive, this paper explains several key principles, which, if kept in mind, will enable preparers to manage a carve-out tax provision process more smoothly.
Understand the purpose of the carve-out financial statements and the corresponding pre-tax accounting
- The separate return method is the preferred method
- Other methods may be acceptable
- Differences between the tax allocation method and the tax sharing agreement should be reflected in equity
- The use of hindsight is prohibited
- FIN 48 applies to the carve-out entity
- Transparent disclosures should be provided