Permanent differences between income under the tax law and income under GAAP arise because some items are recognized at different times for tax purposes than for financial reporting purposes.

Question

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Permanent differences arise because some items are recognized in either the financial statements or tax returns, but not in both, or are treated differently for tax and financial reporting purposes (e.g., fines and penalties are deductible for financial reporting but not for tax purposes), not because of timing differences. Timing differences lead to temporary differences, not permanent ones.

Permanent Differences Between Income Under the Tax Law and Income