An accounting rule for deferred taxes that requires companies to explain within their financial statements the difference between the tax expense found on the income statement and the check actually sent to the Internal Revenue Service (IRS). (This rule superseded FAS 96 and APB 11. )

Some steel companies carry net operating losses (NOLs) on their balance sheets as assets that can be used to offset future taxes. Under the rules of FAS 109, however, a valuation allowance may be recorded to reduce these NOLs unless there is a high probability that they will be used.