Companies have a new accounting rule to follow explaining how they should present unrecognized tax benefits when they also have a net operating loss or a tax credit to carry forward.

The Financial Accounting Standards Board adopted guidance recommended by its Emerging Issues Task Force, which wanted to set companies straight after it realized companies were presenting such tax benefits in different ways. The Accounting Standards Update No. 2013-11 amends Accounting Standards Codification Topic 740 Income Taxes to explain a common approach all companies should follow.

An unrecognized tax benefit is a reserve account where companies park amounts they expect to recognize in future periods based on unresolved tax issues, such as an audit or litigation. Companies have rules to follow in how they should recognize uncertainty in income taxes, but they don't have explicit rules explaining whether to net or gross their unrecognized tax benefits with any net operating loss or tax credit carryforward that might also exist.

Typically, companies are allowed to use current losses to offset profits made in the previous two years, making them eligible for tax refunds in the rough years. For many companies navigating the economic downturn of the past few years, strategizing tax benefits has been commonplace. The American Recovery and Reinvestment Act of 2009 included a provision that extended the two-year offset allowance to five years, giving companies even more latitude to utilize the practice.

FASB's EITF noticed some companies use a net presentation to show their unrecognized tax benefits in relation to their carryforwards while others use a gross presentation. EITF's recommendation to FASB was to require companies to show their unrecognized tax benefit as a reduction to a deferred tax asset or a carryforward except under some specific situations. FASB and EITF agreed that companies should not combine an unrecognized tax benefit with a carryforward or other deferred tax asset if the credit or carryforward is not available on the financial statement date under the applicable tax rules, or if the tax law doesn't allow or the entity doesn't intend to use the deferred tax asset in that way.

For public companies, FASB says the guidance is effective for fiscal and interim periods beginning after Dec. 15, 2013. Nonpublic entities have an extra year to adopt, although early adoption is permitted for any entity.