Lol Memo Essay

1337 Words 6 Pages
Memo
To: Chief Executive Officer
From: Nicholas Petrovich cc: Controller
Date: February 12, 2013
Re: Income Taxes After reviewing Deloitte (D) guidance and the requirements of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes, we addressed (1.) What are the four possible sources of taxable income according to ASC 740? (2.) How much of the reversing taxable temporary differences may be considered in estimating taxable income? (3a.) In evaluating the income LOL is projecting related to future operations, is LOL in a cumulative loss position? (3b.) May LOL exclude the impact of the impairment of the non deductible goodwill when estimating future taxable income? (3c.) May LOL
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Future taxable income exclusive of reversing temporary differences and carryforwards
3. Taxable income in prior carryback year(s) if carryback is permitted under the tax law
4. Tax-planning strategies:
A. Accelerate taxable amounts to utilize expiring carryforwards
B. Change the character of taxable of deductible or deductible amounts from ordinary income or loss to capital gain or loss
C. Switch from tax-exempt to taxable investments
How much of the reversing taxable temporary differences may be considered in estimating future taxable income?
According to ASC 740-10-55-8 the extent that evidence about one or more sources of taxable income is sufficient to eliminate any need for a valuation allowance, other sources need not be considered. Detailed forecasts, projections, or other types of analyses are unnecessary if expected future taxable income is more than sufficient to realize a tax benefit. Likewise ASC 740-10-30-7 states a tax position that meets the more-likely-than-not recognition threshold shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Figure 1 below shows future DTA’s.

Figure 1
Sources of temporary difference Balance in millions Will it reverse? Future taxable income in millions
Depreciation 15 Yes 15
Indefinite

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