When accounting for a tax benefit shortfall from stock-based compensation, does the shortfall increase earnings under U.S. GAAP and International Financial Reporting Standards (IFRS)? U.S. GAAP IFRS A) No No B) No Yes C) Yes No D) Yes Yes Answer: A) A tax benefit shortfall must be recognized as an expense under IFRS whereas in the U.S., a shortfall is used first to reduce additional paid-in-capital from other tax benefits. In either case, earnings would not increase. Can anyone explain about the tax benefit shortfall? Does shortfall mean that the tax benefits from excercised stock options is short of the newly granted stock option expenses? Please help.