5.3 Sources of Taxable Income

To assess whether DTAs meet the more-likely-than-not threshold for realization, an entity needs to consider its sources of future taxable income. Taxable income of the appropriate character (e.g., capital or ordinary), within the appropriate time frame, is necessary for the future realization of DTAs.

When determining whether a valuation allowance is needed, an entity must (1) evaluate each of the four sources of taxable income discussed below in accordance with how objectively verifiable it is and (2) consider that each may represent positive evidence that future taxable income will be generated. In addition, the entity may also have to consider negative evidence in its analysis.

As noted in Section 5.2, ASC 740-10-30-18 lists four sources of taxable income that may enable realization of a DTA, stating, in part:

The following four possible sources of taxable income may be available under the tax law to realize a tax benefit for deductible temporary differences and carryforwards:

Future reversals of existing taxable temporary differences
Future taxable income exclusive of reversing temporary differences and carryforwards
Taxable income in prior carryback year(s) if carryback is permitted under the tax law
Tax-planning strategies (see paragraph 740-10-30-19) that would, if necessary, be implemented to, for example:
1. Accelerate taxable amounts to utilize expiring carryforwards
2. Change the character of taxable or deductible amounts from ordinary income or loss to capital gain or loss
3. Switch from tax-exempt to taxable investments.

The possible sources listed in ASC 740-10-30-18(a) and (c) above can often be objectively verified. Because the sources listed in ASC 740-10-30-18(b) and (d) are based on future events, their determination is more subjective. An entity should first consider the objectively verifiable sources. If, within the appropriate time frame, those sources will generate sufficient taxable income of the right character (e.g., capital or ordinary), an entity may not need to assess the likelihood of other future taxable income.

The implementation guidance in ASC 740-10-55-16 and 55-17 illustrates that the timing of the deductions and other benefits associated with a DTA must coincide with the timing of the taxable income. An entity may devise a qualifying tax-planning strategy (the source listed in ASC 740-10-30-18(d) above) to change the timing or character of the future taxable income. Such a strategy should be given more weight (see ASC 740-10-30-23) than a forecast of future taxable income from future events (the source listed in ASC 740-10-30-18(b) above) since it constitutes more objectively verifiable evidence of realizability. To help illustrate how to weigh the four sources of future taxable income, we will discuss each source in more detail below.

5.3.1 Future Reversals of Existing Taxable Temporary Differences

When evaluating whether an existing taxable temporary difference is a source of future taxable income under ASC 740-10-30-18(a), an entity must have a general understanding of the reversal patterns of temporary differences because such an understanding is relevant to the measurement of DTAs in the entity’s assessment of the need for a valuation allowance under ASC 740-10-30-18. The example below illustrates the future reversals of existing taxable temporary differences as a source of taxable income.

Example 5-11

Existing Taxable Temporary Differences That Will Reverse in the Future

Generally, the existence of sufficient taxable temporary differences will enable use of the tax benefit of operating loss carryforwards, tax credit carryforwards, and deductible temporary differences, irrespective of future expected income or losses from other sources identified in ASC 740-10-30-18. For example, if an entity has $300,000 of taxable temporary differences that are expected to reverse over the next 10 years (which represents objectively verifiable positive evidence) and deductible temporary differences of $25,000 that are expected to reverse within the next several years, realization of the DTA is more likely than not and no valuation allowance would be necessary even if future losses are expected or a cumulative loss exists as of the measurement date (the latter of which would represent objectively verifiable negative evidence; see the discussion in Section 5.3.2.1). Because the reversing future taxable temporary differences are objectively verifiable positive evidence, they may be used to outweigh the objectively verifiable negative evidence of cumulative losses.

Another simple example is the temporary difference that is often created by the accrual of warranty reserves. In most tax jurisdictions, tax deductions for accrued warranty costs are not permitted until the obligation is settled. The temporary differences attributable to warranty accruals for financial reporting purposes should be scheduled to reverse during the years in which the tax deductions are expected to be claimed.

5.3.1.1 Determining the Pattern of Reversals of Existing Taxable Temporary Differences

Although ASC 740-10-55-22 states, in part, that the “methods used for determining reversal patterns should be systematic and logical,” ASC 740 does not specify in detail how the reversal patterns for each class of temporary differences should be treated and indicates that in many situations there might be more than one logical approach. The amount of scheduling of reversal patterns that might be necessary, if any, will therefore depend on the specific facts and circumstances. The implementation guidance in ASC 740-10-55-12 and 55-13 suggests that two concepts are important to determining the reversal patterns for existing temporary differences:

The “tax law determines whether future reversals of temporary differences will result in taxable and deductible amounts that offset each other in future years.”
The “particular years in which temporary differences result in taxable or deductible amounts generally are determined by the timing of the recovery of the related asset or settlement of the related liability.”

Further, ASC 740-10-55-22 states that “[m]inimizing complexity is an appropriate consideration in selecting a method for determining reversal patterns” and that an entity should use the same method of reversal when measuring the deferred tax consequences for a “particular category of temporary differences for a particular tax jurisdiction.” For example, if the loan amortization method and the present value method are both systematic and logical reversal patterns for temporary differences that originate as a result of assets and liabilities that are measured at present value, an entity engaged in leasing activities should consistently use either of those methods for all its temporary differences related to leases that are recorded as lessor receivables, because those temporary differences are related to a particular category of items. If that same entity also has temporary differences resulting from loans receivable, a different method of reversal might be used because those differences are related to another category of temporary differences.

ASC 740-10-55-22 also states, in part:

If the same temporary difference exists in two tax jurisdictions (for example, U.S. federal and a state tax jurisdiction), the same method should be used for that temporary difference in both tax jurisdictions. The same method for a particular category in a particular tax jurisdiction should be used consistently from year to year.

An entity should report any change in the method of reversal as a change in accounting principle in accordance with ASC 250.

See Section 5.8 for additional examples of existing temporary differences and some common methods for determining the pattern of their reversal.

5.3.1.2 Realization of a DTA Related to an Investment in a Subsidiary: Deferred Income Tax Exceptions Not a Source of Income

The future reversal of an existing taxable temporary difference for which a DTL has not been recognized under the indefinite reversal criteria of ASC 740-30-25-17 should not be considered a source of taxable income in accordance with the source listed in ASC 740-10-30-18(a) discussed above. ASC 740-30-25-13 indicates that an entity should not consider future distributions of future earnings of a subsidiary or corporate joint venture in assessing the need for a valuation allowance unless a DTL has been recognized for existing undistributed earnings or earnings have been remitted in the past. Similarly, an entity should not consider future reversals of existing taxable temporary differences as a source of taxable income unless a DTL has been recognized on the related taxable temporary difference (i.e., an unrecognized DTL is not a source of future taxable income). The example below illustrates this concept.

Example 5-12

An Unrecognized DTL Is Not a Source of Future Taxable Income

Assume that before the enactment of the 2017 Act, Entity X, a U.S. domestic parent entity, has a wholly owned foreign subsidiary, FS1. The amounts for financial reporting and the tax basis of X’s investment in FS1 are $2,000 and $1,000, respectively, on December 31, 20X1 (i.e., X has a taxable outside basis difference related to its investment in FS1). Further assume that X has an NOL DTA of $1,000, with a 20-year carryforward period.3

Entity X has not recorded a DTL related to its investment in FS1 because X asserts that the indefinite reinvestment criteria have been met for the $1,000 taxable temporary difference, which is attributable to undistributed earnings. In addition, FS1 has not previously remitted earnings.

Ordinarily, before the enactment of the 2017 Act, an existing taxable temporary difference (e.g., from the undistributed earnings of FS1) would have been a potential source of taxable income for consideration in the assessment of the need for a valuation allowance. However, X has not previously accrued a DTL on the earnings of FS1, and FS1 has not remitted earnings in the past; therefore, X cannot consider the reversal of the outside basis taxable temporary difference associated with its investment in FS1 as a source of taxable income when determining whether it is more likely than not that the NOL DTA is realizable.

5.3.1.3 Using the Reversal of a DTL for an Indefinite-Lived Asset as a Source of Taxable Income After Enactment of the 2017 Act

Enactment of the 2017 Act modified aspects of U.S. federal tax law regarding NOL carryforwards. Under previous U.S. federal tax law, NOLs generally had a carryback period of two years and a carryforward period of twenty years. For NOLs incurred in years subject to the new federal tax rules, the 2017 Act eliminates, with certain exceptions, the NOL carryback period and permits an indefinite carryforward period, with some limitations as discussed below. However, the provision to eliminate the NOL carryback period was temporarily repealed with the enactment of the CARES Act, which reinstated a five-year carryback period for certain taxable years (see Section 5.3.3 for further information about the carryback period).

As discussed in Section 5.3, one of the four sources of future taxable income is a reversal of an existing taxable temporary difference. After implementation of the 2017 Act, a taxable temporary difference associated with an indefinite-lived asset is generally considered to be a source of taxable income that justifies the realization of either NOLs with an unlimited carryforward period or disallowed interest carryforwards with unlimited carryforward periods. This would also generally be true for a deductible temporary difference that is scheduled to reverse into an NOL with an unlimited carryforward period. However, because the 2017 Act includes restrictions on the ability to use NOLs and disallowed interest carryforwards with unlimited carryforward periods (i.e., NOLs arising in years subject to the new rules are limited in use to 80 percent of taxable income and the amount of net business interest an entity can deduct is limited to 30 percent of modified taxable income), no more than 80 percent or 30 percent of the indefinite-lived taxable temporary difference would serve as a source of taxable income with respect to the NOL or disallowed interest carryforward, respectively.4

However, an entity may sometimes have both NOLs with an unlimited carryforward period and disallowed interest carryforwards with an unlimited carryforward period, meaning that portions of the indefinite-lived taxable temporary difference might serve as a source of taxable income for both because of the limitations provided in the 2017 Act. For example, because the annual interest limitation is calculated before NOLs are taken into account, the taxable temporary difference associated with an indefinite-lived asset would first be a source of taxable income for the disallowed interest carryforward (limited to 30 percent of the taxable temporary difference, as discussed above), but then any remaining taxable temporary difference on the indefinite lived asset might also be a source of taxable income for NOLs with an unlimited carryforward period (limited to 80 percent of the remaining taxable temporary difference, as discussed above).

For existing U.S. federal jurisdiction NOLs created before the effective date of the 2017 Act and in jurisdictions that have finite-lived NOLs, the reversal of a DTL related to an indefinite-lived asset generally cannot be used as a source of taxable income to support the realization of such finite-lived DTAs. This is because a taxable temporary difference related to an indefinite-lived asset (e.g., land, indefinite-lived intangible assets, and tax-deductible “component 1” goodwill) will reverse only when the indefinite-lived asset is sold. If a sale of an indefinite-lived asset is not expected in the foreseeable future, the reversal of the related DTL generally cannot be scheduled, so an entity generally cannot consider the reversal a source of future taxable income when assessing the realizability of DTAs, other than for indefinite-lived DTAs. However, there are circumstances such as the following in which it may be appropriate to consider a DTL related to an indefinite-lived asset as a source of taxable income for a finite-lived NOL:

If the sale of an indefinite-lived asset is expected in the foreseeable future (e.g., the asset is classified as held for sale) and the related DTL can therefore be scheduled to reverse.
If it is anticipated that the indefinite-lived asset will be reclassified as finite-lived. For example, an R&D asset acquired in a business combination that is initially classified as indefinite-lived will be reclassified as finite-lived once the project is completed or abandoned.

5.3.1.4 Deemed Repatriation Transition Tax as a Source of Future Taxable Income

Under certain circumstances, an entity would record a liability for the transition tax in the financial statements for the year that included the enactment date but would not include the deemed repatriation and corresponding tax in that year’s tax return. We believe that it would be appropriate in these circumstances for the entity to consider the corresponding one-time deemed repatriation income inclusion to be a source of taxable income when analyzing the realization of DTAs recorded in the financial statements in the period in which the transition tax liability is recorded. The entity should verify that the one-time deemed repatriation income inclusion coincides with the timing of the deductions and other benefits associated with the DTAs.

However, if the entity elects to defer payment of the transition tax liability over a period of up to eight years, the transition tax liability itself does not represent a source of taxable income in future periods when analyzing the realization of DTAs that remain after the deemed repatriation has been included in the entity’s income tax return. This is because settlement of the transition tax liability in a future year or years will not result in taxable income.

See Chapter 3 for a discussion of outside basis differences and the deemed repatriation transition tax.

5.3.2 Future Taxable Income

Management projections are inherently subjective.5 Therefore, future taxable income under ASC 740-10-30-18(b) is generally considered to be subjectively determined as opposed to objectively determined.

An entity will consider a number of factors in preparing subjective projections of future taxable income, including the following:

The reasonableness of management’s business plan and its impact on future taxable income, including management’s history of carrying out its stated plans and its ability to carry out its plans (given contractual commitments, available financing, or debt covenants).
The reasonableness of financial projections based on historical operating results.
The consistency of assumptions in relation to prior periods and projections used in other financial statement estimates (e.g., goodwill impairment analysis).
Consistency with relevant industry data, including short- and long-term trends in the industry.
The reasonableness of financial projections when current economic conditions are considered.

See Section 5.4 for further considerations related to future events.

5.3.2.1 Future Taxable Income When an Entity has Cumulative Losses

An entity that has cumulative losses is generally prohibited from using an estimate of subjectively determined future earnings to support a conclusion that realization of an existing DTA is more likely than not if such a forecast is not based on objectively verifiable information. An objectively verifiable estimate of future income is based on operating results from the reporting entity’s recent history.

5.3.2.2 Effect of Nonrecurring Items on Estimates of Future Income and Development of Objectively Verifiable Future Income Estimates

When objectively verifiable negative evidence is present (e.g., cumulative losses), an entity may develop an estimate of future taxable income or loss that is also considered to be objectively verifiable when determining the amount of the valuation allowance needed to reduce the DTA to an amount that is more likely than not to be realized. Management’s projections of future income are inherently not objectively verifiable, and therefore, such projections alone would not be enough to outweigh objectively verifiable negative evidence such as cumulative losses. However, to the extent that management’s future income projections are adjusted to be based solely on objectively verifiable evidence (e.g., when an estimate is based on operating results from the entity’s recent history, no subjective assumptions have been made, and there is no contrary evidence suggesting that future taxable income would be less than historical results), entities may give more weight to the positive evidence from such estimates.

That is, such estimates should be based on objectively verifiable evidence (e.g., an estimate of future income that does not include reversals of taxable temporary differences and carryforwards and that is based on operating results from the entity’s recent history without subjective assumptions). An entity with objective negative evidence may look to its recent operating history to determine how much, if any, income exclusive of temporary differences is expected in future years. The entity typically begins this determination by analyzing income or loss for financial reporting purposes during its current year and two preceding years and adjusts for certain items as discussed below.

When preparing an objectively verifiable estimate of future income or loss by using historical income or loss for financial reporting purposes in recent years, an entity should generally not consider the effects of nonrecurring items and businesses classified as discontinued operations or held for sale. Generally, these items are not relevant to or indicative of an entity’s ability to generate taxable income in future years. Examples of nonrecurring items that an entity usually excludes from its historical results when preparing such estimates of future income include:

One-time restructuring charges that permanently remove fixed costs from future cash flows.
Large litigation settlements or awards that are not expected to recur in future years.
Historical interest expense on debt that has been restructured or refinanced.
Historical fixed costs that have been reduced or eliminated.
Large permanent differences that are included in pretax accounting income or loss but are not a component of taxable income.
One-time severance payments related to management changes.

When adjusting historical income or loss for financial reporting purposes to develop an estimate of future income or loss that is generally considered to be objectively verifiable evidence, an entity may also need to consider items occurring after the balance sheet date but before the issuance of the financial statements. For example, a debt refinancing that is in process as of the balance sheet date and consummated before the date of issuance of the financial statements may constitute additional objectively verifiable evidence when an entity is projecting future taxable income, since the entity’s normal projections (which would have been used in the absence of the existence of negative evidence in the form of cumulative losses) would routinely have included this as a forecasted item. An entity must use judgment and carefully consider the facts and circumstances in such situations.

Notwithstanding the above, the following items should generally not be considered nonrecurring:

Unusual loss allowances (e.g., large loan loss or bad-debt loss provisions).
Poor operating results caused by an economic downturn, government intervention, or changes in regulation.
Operating losses attributable to a change in the focus or directives of a subsidiary or business unit.
Onerous effects on historical operations attributable to prior management decisions when a new management team is engaged (excluding any direct employment cost reductions associated with the replacement of the old management team).

See Section 5.7.12 for considerations related to the impact of interest limitations on the estimate of future taxable income. Once the objectively verifiable estimate of future income has been developed, this estimate may be used to support the realizability of DTAs. Entities often use an average of the current and two prior years of adjusted historical results as a basis from which to develop an objectively verifiable estimate of annual taxable income for future periods.

The example below illustrates how an entity might develop an estimate of future taxable income (excluding reversals of temporary differences and carryforwards) that is based on objectively verifiable historical results when objectively verifiable negative evidence in the form of cumulative losses exists.

Example 5-13

Estimation of Future Taxable Income When Negative Evidence in the Form of Cumulative Losses Exists

Assume the following:

Entity X, a calendar-year entity, operates in a single tax jurisdiction in which the tax rate is 25 percent.
Tax losses and tax credits can be carried forward for a period of four years after the year of origination. However, carryback of losses or credits to recover taxes paid in prior years is not permitted.
As of December 31, 20X3, X has a tax loss carryforward of $1,000 and a tax credit carryforward of $600, both of which expire on December 31, 20X7. Thus, to realize its DTA of $850, or ($1,000 × 25%) + $600, at the end of 20X3, X must generate $3,400 ($850 ÷ 25%) of future taxable amounts through 20X7 — the tax loss and tax credit carryforward period.
There are (1) no tax-planning strategies available to generate additional taxable income and (2) no taxable temporary differences as of December 31, 20X3.
Entity X has determined that a three-year period is the appropriate period for which it will assess whether negative evidence in the form of cumulative losses in recent years exists.
Historical pretax income (loss) is $100, ($500), and ($1,000) for 20X3, 20X2, and 20X1, respectively.
The following table shows historical income (loss) adjusted for nonrecurring items during the three-year period ending on December 31, 20X3, which X considers when estimating future income that does not include reversals of temporary differences and carryforwards:

Because X has positive average annual adjusted pretax income (i.e., historical earnings when adjusted for nonrecurring items), it may consider its average annual adjusted pretax income as a starting point for objectively estimating future taxable income (excluding reversals of temporary differences and carryforwards). However, the estimation of future income is not simply a “mechanical exercise” in which X would multiply its average annual adjusted pretax income by the number of years remaining in the loss or credit carryforward period. Rather, X should consider adjusting its average annual pretax income for certain additional positive and negative evidence that is present in the historical period to develop an estimate that is based on objectively verifiable evidence, including, but not limited to:

Its recent trend in earnings (i.e., the fact that earnings for the most recent year [20X3] are less than those of the prior year [20X2] and the three-year average annual adjusted pretax income, which might suggest that the use of average annual adjusted pretax income is inappropriate).
The length and magnitude of pretax losses compared with the length and magnitude of pretax income (e.g., X has a significant cumulative loss and has only recently returned to a minor amount of profitability).
The causes of its annual losses (e.g., X reported a pretax loss in 20X1 even on an adjusted basis) and cumulative losses.
Anticipated changes in the business.

The weight given to the positive evidence in the form of X’s estimate of future taxable income should be commensurate with the extent to which it is based on objectively verifiable historical results. Entity X would then determine whether a valuation allowance is needed on the basis of all available evidence, both positive and negative.

5.3.2.2.1 Time Frame for Projection of Future Taxable Income

An entity should consider as many years as it can to reliably estimate future taxable income on the basis of its specific facts and circumstances. Although subjectivity may increase as the number of years increases, it would usually not be appropriate for an entity to limit the number of years it uses to estimate future taxable income, whether such estimates represent management’s inherently subjective projections of future income or objectively verifiable estimates of future income based on adjusted historical results as determined by using the method discussed above. In either case, limiting the period over which future taxable income is estimated could inappropriately result in a smoothing of the income statement impact of changes in a valuation allowance. For example, it would not be appropriate to continue to add a year to the estimate of future taxable income as each year passes so that changes in a valuation allowance occur annually. Rather, in these situations, it may be reasonable to project additional years of taxable income on the basis of historical operating results by using the method discussed above. In some circumstances, however, there may be a limited number of years over which future taxable income can be estimated because significant changes are expected in the business (e.g., probable future withdrawal from the jurisdiction); in such circumstances, the time frame used would be limited and should not change until a change in facts and circumstances warrants an adjustment.

5.3.2.2.2 Effect of Excess Tax Deductions for Equity-Classified Share-Based Payment Awards on the Assessment of Future Taxable Income

Special consideration may be warranted when an entity has equity-classified share-based payment awards. In forecasting future taxable income, an entity should base its estimate of future excess tax deductions on its outstanding awards and the stock price as of the balance sheet date. The assumptions the entity uses in the valuation allowance assessment should be consistent with those it uses in its disclosures under ASC 718-10-50-2(e) about its share-based payment arrangements, including the number of shares, the requisite service period, the maximum contractual term of the awards, the number and weighted-average exercise price and grant-date fair values of the award, the total intrinsic value of the awards, the expense recognized, and information about modifications of the awards.

An entity should generally not anticipate that excess share-based tax deductions will continue in perpetuity (i.e., such deductions should not be considered recurring permanent differences). An excess tax benefit exists when the amount of the tax deduction is greater than the compensation cost recognized for financial reporting purposes (exercise fair value is greater than the grant date fair value). Generally, we do not believe that it would be appropriate for an entity to forecast future increases or decreases in stock prices when estimating future taxable income because those changes cannot be reliably estimated. See Chapter 10 for additional guidance share-based payments.

5.3.2.3 Use of Attributes That Result in Replacement or “Substitution” of DTAs

ASC 740-10

55-37 An operating loss or tax credit carryforward from a prior year (for which the deferred tax asset was offset by a valuation allowance) may sometimes reduce taxable income and taxes payable that are attributable to certain revenues or gains that the tax law requires be included in taxable income for the year that cash is received. For financial reporting, however, there may have been no revenue or gain and a liability is recognized for the cash received. Future sacrifices to settle the liability will result in deductible amounts in future years. Under those circumstances, the reduction in taxable income and taxes payable from utilization of the operating loss or tax credit carryforward gives no cause for recognition of a tax benefit because, in effect, the operating loss or tax credit carryforward has been replaced by temporary differences that will result in deductible amounts when a nontax liability is settled in future years. The requirements for recognition of a tax benefit for deductible temporary differences and for operating loss carryforwards are the same, and the manner of reporting the eventual tax benefit recognized (that is, in income or as required by paragraph 740-20-45-3) is not affected by the intervening transaction reported for tax purposes. Example 20 (see paragraph 740-10-55-156) illustrates recognition of the tax benefit of an operating loss in the loss year and in subsequent carryforward years when a valuation allowance is necessary in the loss year.

ASC 740-10-55-37 describes a situation in which an NOL carryforward from a prior year may be used to reduce taxable income (and taxes payable) on an entity’s income tax return. In this scenario, the attribute is used to offset a gain in the current year that must, in accordance with tax law, be included in taxable income for the year in which cash is received. However, in doing so, the NOL carryforward DTA may be replaced by another DTA because a liability is recognized for financial reporting purposes under U.S. GAAP, and future sacrifices to settle the liability will result in deductible amounts in future years.

In situations such as these, in which a DTA for an attribute is replaced by a DTA for a future deduction, the use of the attribute against the entity’s taxable income (and, thus, the reduction in its income tax payable) generally would not constitute realization of a tax benefit unless the entity has other sources of future taxable income that the “replacement” or “substitute” DTA can be used to offset. For example, this would be the case if the NOL carryforward was set to expire and the “refresh” of the attribute (i.e., the use of the attribute and substitution with a future deduction) allowed the company to access sources of future taxable income that are more likely than not to arise in a period beyond the end of the existing carryforward period for the attribute. In other words, unless the future deduction that replaced the attribute can also be realized, the use of the attribute does not constitute realization. If, on the other hand, an economic benefit will result from the use of the attribute, realization has occurred.

We believe that while ASC 740-10-55-37 does not specifically address such cases, an entity would apply this principle to assess realization in situations in which (1) the attribute already has a valuation allowance recorded against it but will be used in a future year or (2) the entity is evaluating planning strategies that it could execute in a subsequent year.

The example below from ASC 740-10-55-156 through 55-158 illustrates the guidance in ASC 740-10-55-37 on the interaction of NOL carryforwards and temporary differences.

ASC 740-10

Example 20: Interaction of Loss Carryforwards and Temporary Differences

55-156 This Example illustrates the guidance in paragraph 740-10-55-37 for the interaction of loss carryforwards and temporary differences that will result in net deductible amounts in future years. This Example has the following assumptions:

The financial loss and the loss reported on the tax return for an entity’s first year of operations are the same.
In Year 2, a gain of $2,500 from a transaction that is a sale for tax purposes but does not meet the sale recognition criteria for financial reporting purposes is the only difference between pretax financial income and taxable income.

55-157 Financial and taxable income in this Example are as follows.

55-158 The $4,000 operating loss carryforward at the end of Year 1 is reduced to $1,500 at the end of Year 2 because $2,500 of it is used to reduce taxable income. The $2,500 reduction in the loss carryforward becomes $2,500 of deductible temporary differences that will reverse and result in future tax deductions when the sale occurs (that is, control of the asset transfers to the buyer-lessor). The entity has no deferred tax liability to be offset by those future tax deductions, the future tax deductions cannot be realized by loss carryback because no taxes have been paid, and the entity has had pretax losses for financial reporting since inception. Unless positive evidence exists that is sufficient to overcome the negative evidence associated with those losses, a valuation allowance is recognized at the end of Year 2 for the full amount of the deferred tax asset related to the $2,500 of deductible temporary differences and the remaining $1,500 of operating loss carryforward.

As illustrated above, in the absence of positive evidence (e.g., projections of future taxable income), there will ultimately be no realization resulting from use of the operating loss carryforward.

5.3.3 Taxable Income in Prior Carryback Year(s) if Carryback Is Permitted Under the Tax Law

The ability to recover taxes paid in the carryback period under ASC 740-10-30-18(c) is considered to be an objectively verifiable form of positive evidence that can overcome negative evidence such as the following: (1) cumulative losses; (2) a history of operating losses expiring unused; (3) losses expected in early future years; (4) unsettled circumstances that, if unfavorably resolved, would adversely affect future operations; and (5) a brief carryforward period, discussed earlier.

Some tax laws (e.g., those in certain U.S. state, local, or foreign tax jurisdictions) permit taxpayers to carry back operating loss or tax credits to obtain refunds of taxes paid in prior years. The extent to which the carryback benefit is possible depends on the length of the carryback period and the amounts and character of taxable income generated during that period.

While the enactment of the 2017 Act eliminated the ability to carry back NOLs originating in years after December 31, 2017, the CARES Act repealed this provision for certain taxable years. Under the CARES Act, NOLs that arise in taxable years beginning after December 31, 2017, and before January 1, 2021, are allowed to be carried back to each of the five taxable years that precede the taxable year of that loss. Entities that generated taxable income in previous years may now be able to carry back current year losses to those periods and, as a result, will need to evaluate how this change in tax law affects their realizability assessment of DTAs. For further information about the CARES Act and the subsequent income tax accounting, see Deloitte’s April 9, 2020 (updated September 18, 2020), Heads Up.

The example below illustrates taxable income in prior carryback year(s) in situations in which carryback is permitted under the tax law as a source of taxable income listed in ASC 740-10-30-18(c).

Example 5-14

Refunds Available by Carryback of Losses to Offset Taxable Income in Prior Years

Assume that an entity has a deductible temporary difference of $1,000 at the end of 20X1 and that pretax income and taxable income are zero. If at least $1,000 of taxable income is available for carryback refund of taxes paid during the year in which the temporary difference becomes deductible, realization of the DTAs for the net deductible amount is more likely than not even though tax losses are expected in early future years.

5.3.4 Tax-Planning Strategies

As indicated in ASC 740-10-30-18(d), among the sources of future income that may enable realization of a DTA are “[t]ax-planning strategies (see paragraph 740-10-30-19) that would, if necessary, be implemented to, for example:

Accelerate taxable amounts to utilize expiring carryforwards
Change the character of taxable or deductible amounts from ordinary income or loss to capital gain or loss
Switch from tax-exempt to taxable investments” (emphasis added).

Because future taxable income from the source listed in ASC 740-10-30-18(d) may be based on future events, it may be more subjective than that from the sources listed in ASC 740-10-30-18(a) and (c).

The ASC master glossary defines a tax-planning strategy as follows:

An action (including elections for tax purposes) that meets certain criteria (see paragraph 740-10-30-19) and that would be implemented to realize a tax benefit for an operating loss or tax credit carryforward before it expires. Tax-planning strategies are considered when assessing the need for and amount of a valuation allowance for deferred tax assets.

A qualifying tax-planning strategy must meet the criteria in ASC 740-10-30-19. That is, the tax-planning strategy should be (1) “prudent and feasible”; (2) one that an entity “ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused”; and (3) one that “[w]ould result in realization of [DTAs].” ASC 740-10-55-39 clarifies these three criteria:

For the tax-planning strategy to be prudent and feasible, “[m]anagement must have the ability to implement the strategy and expect to do so unless the need is eliminated in future years.” If the action is prudent but not feasible (or vice versa), it would not meet the definition of a tax-planning strategy. In determining whether an action constitutes a tax-planning strategy, an entity should consider all internal and external factors, including whether the action is economically prudent.
Regarding criterion 2, strategies management would employ in the normal course of business are considered “implicit in management’s estimate of future taxable income and, therefore, are not tax-planning strategies.”
Regarding whether the strategy would result in realization of DTAs (criterion 3 above), ASC 740-10-55-39(c) states, in part, that “[t]he effect of qualifying tax-planning strategies must be recognized in the determination of . . . a valuation allowance.” Further, the tax-planning strategy should result in the realization of a DTA, but only if it does not result in another DTA that would not be realized.

Management should have control over implementation of the tax-planning strategy. However, paragraph A107 of the Basis for Conclusions in FASB Statement 109 clarifies that this control does not need to be unilateral. In determining whether a tax-planning strategy is under management’s control, the entity should consider whether, for example, the action is subject to approval by its board of directors and whether approval is reasonably ensured.

Finally, to be considered a possible source of future taxable income, a tax-planning strategy (and any associated taxable income generated from that strategy) must (1) meet the more-likely-than-not recognition threshold and (2) be measured as the largest amount of benefit that is more likely than not to be realized.

Because tax-planning strategies are a possible source of taxable income that an entity must consider when assessing the need for a valuation allowance, an entity must make a reasonable effort to identify qualifying tax-planning strategies. Question 27 of the FASB Staff Implementation Guide to Statement 109 addresses whether management must “make an extensive effort to identify all tax-planning strategies that meet the criteria for tax-planning strategies.” The answer, which was codified in ASC 740-10-55-41, states, in part:

Because the effects of known qualifying tax-planning strategies must be recognized . . . , management should make a reasonable effort to identify those qualifying tax-planning strategies that are significant. Management’s obligation to apply qualifying tax-planning strategies in determining the amount of valuation allowance required is the same as its obligation to apply the requirements of other Topics for financial accounting and reporting. However, if there is sufficient evidence that taxable income from one of the other sources of taxable income listed in paragraph 740-10-30-18 will be adequate to eliminate the need for any valuation allowance, a search for tax-planning strategies is not necessary.

5.3.4.1 Examples of Qualifying Tax-Planning Strategies

The following are some possible examples (not all-inclusive) of qualifying tax-planning strategies:

Selling and subsequent leaseback of certain operating assets.
Switching certain investments from tax-exempt to taxable securities.
Filing a consolidated tax return versus separate stand-alone income tax returns.
Disposing of obsolete inventory that is reported at net realizable value.
Changing the method of accounting for inventory for tax purposes.
Selling loans at an amount that is net of their allowance for doubtful accounts.
Accelerating the funding of certain liabilities if that funding is deductible for tax purposes.
Switching from deducting R&D costs to capitalizing and amortizing the costs for tax purposes.
Electing to deduct foreign taxes paid or accrued rather than treating them as creditable foreign taxes.
Accelerating the repatriation of foreign earnings for which deferred taxes were previously funded.

The examples below illustrate additional situations in which entities use tax-planning strategies to provide evidence of future taxable income to support the conclusion that no valuation allowance is required or that a valuation allowance is necessary for only a portion of the entity’s DTAs.

Example 5-15

Acceleration of Taxable Amounts to Use Carryforward

In 20X2, Entity A generates, for tax purposes, a $2,000 operating loss that cannot be used in the current tax return. Tax law allows for a one-year carryforward. However, after considering (1) future reversals of existing taxable temporary differences, (2) future taxable income exclusive of reversing taxable temporary differences and carryforwards, and (3) taxable income in the prior carryback years, A must record a valuation allowance for the tax consequences of $1,000 of future deductions that are not expected to be realized.

However, A has identified a tax-planning strategy that involves selling at book value, and leasing back, plant and equipment. This strategy would accelerate $600 of taxable amounts (the excess depreciation in prior years) that would otherwise reverse in years beyond the carryforward period. For tax purposes, the sale would accelerate the reversal of the taxable difference (the excess-book-over-tax basis on the date of the sale-leaseback) into taxable income in the year of the sale. After considering the strategy, A must record a valuation allowance at the end of 20X2 only for the $400 of the operating loss whose realization is not more likely than not.

When A is considering the sale and leaseback of assets as a tax-planning strategy, it should be reasonable for A to conclude that the fair value of the assets approximates the book value at the time of the sale. If the assets have appreciated, the sale and leaseback would create taxable income (typically considered a capital gain). Conversely, selling the assets at a loss would reduce the taxable income that is created by the strategy. In addition, for the sale and leaseback of assets to meet the criteria for a qualifying tax-planning strategy, future taxable income must otherwise be expected (because the sale and leaseback of assets when the fair value approximates the carrying value does not create additional taxable income). Without future taxable income, the sale and leaseback only postpones the expiration of the DTA. Further, when measuring the valuation allowance necessary (i.e., the impact of future lease payments on taxable income), A must incorporate the future implications of the tax-planning strategy into the determination of the strategy’s effects (see Section 5.3.4.3 for more information about measuring the tax benefits of tax-planning strategies).

Example 5-16

Switch From Tax-Exempt to Taxable Investments

In 20X2, Entity B generates $2,000 of tax credits that cannot be used in the current-year tax return. Tax law permits a one-year credit carryforward to reduce income taxes in 20X3. After considering (1) future reversals of existing taxable temporary differences, (2) future taxable income exclusive of taxable temporary differences and carryforwards, and (3) taxable income in the prior carryback years, B must record a valuation allowance of $1,000.

However, B has identified a tax-planning strategy in which its investment portfolio of tax-exempt securities could, if sold and replaced with higher-yielding taxable securities, generate sufficient taxable income during 20X3 to enable the use of $200 of the available tax credit carryforward. Provided that the replacement of tax-exempt securities is prudent and feasible, a valuation allowance is recognized only for the $800 of tax credit carryforwards whose realization is not more likely than not. In assessing whether the tax-planning strategy is prudent and feasible, B should determine whether the replacement securities offer a better pretax yield than the tax-exempt securities (i.e., if the yield is identical, no benefit is derived from the change in investment and the tax-planning strategy is therefore not prudent).

5.3.4.2 Examples of Nonqualifying Tax-Planning Strategies

The following actions would generally not qualify as tax-planning strategies because they would not meet one or more of the criteria in ASC 740-10-30-19 (as discussed above):

Actions that are inconsistent with financial statement assertions. For example, to classify an investment in a debt security as HTM, an entity must positively assert that it has the ability and intent to hold the investment until maturity. It would be inconsistent with that assertion for the entity to simultaneously assert as a tax-planning strategy that it would sell securities classified as HTM to realize a DTA.

However, the absence of a positive financial statement assertion does not necessarily preclude an action from qualifying as a tax-planning strategy. For example, an entity does not need to meet all the criteria for held-for-sale classification to assert as a tax-planning strategy that it would sell an appreciated asset to realize a DTA.
Selling an entity’s principal line of business or selling certain operating assets (e.g., an indefinite-lived trade name) that are core to the business. Such an action would not be considered prudent.
Selling advanced technology to a foreign government when such a sale is prohibited by statute. Such an action would not be considered feasible.
Disposing of an unprofitable subsidiary, which is generally not considered an action that an entity “might not ordinarily take” and may not be feasible.
Funding executive deferred compensation before the agreed-upon payment date. Such a strategy would generally not be considered prudent because, while it would result in reversal of a DTA, it would also result in an acceleration of income tax for the executive(s).
Moving income from a nontax jurisdiction to a tax jurisdiction solely to realize operating loss carryforwards. This action would result in use of the asset in the jurisdiction receiving the income but not in an overall economic benefit since, irrespective of whether the entity took the action, it would not have incurred tax on the income.

In addition, changing a parent entity’s tax status generally would not qualify as a tax-planning strategy because ASC 740-10-25-32 requires that the effect of a change in tax status be recognized as of the date on which the change in tax status occurs.

The example below illustrates a situation in which an entity would not be able to use the proposed tax-planning strategy as positive evidence to support the conclusion that no valuation allowance is necessary because the tax-planning strategy does not align with positions taken elsewhere within the financial statements.

Example 5-17

Tax-Planning Strategy That Is Inconsistent With Financial Statement Assertions

Assume the following:

An entity is measuring its DTAs and DTLs at the end of 20X2.
Capital losses of $2 million were incurred in 20X2.
Capital losses can be used only to offset capital gains; no capital gains occurred in 20X2.
The capital gains tax rate is 50 percent.
The entity has an investment portfolio of debt securities that it has classified as HTM in accordance with ASC 320. The portfolio has the following attributes:
An assumption inherent in the preparation of the financial statements is that an other-than-temporary impairment (OTTI) has not occurred in accordance with ASC 320-10-35-33A though 35-33C6 because (1) the entity does not have the intent to sell any of the securities in the portfolio, (2) it is not more likely than not that the entity will be required to sell any of the securities in the portfolio before recovery, and (3) the entity expects to recover the entire amortized cost basis of the securities in the portfolio.
Management is considering a tax-planning strategy to sell the debt securities to generate an $800,000 taxable gain to reduce the valuation allowance that would otherwise be necessary. No cost would be incurred on the sale.

The strategy is inconsistent with the assumptions inherent in the preparation of the financial statements. If the entity assumed the sale of the debt securities to recognize a tax benefit of $400,000 ($800,000 × 50%), such a strategy would conflict with ASC 320’s HTM classification. The strategy may also conflict with the entity’s OTTI assumptions (i.e., intent to sell; see ASC 320-10-35-33A) and potentially other financial statement assertions, such as the entity’s use of Approach 1, described in Section 5.7.4.1, to evaluate DTAs on its debt securities’ unrealized losses. The tax-planning strategy described above would be inconsistent with the assumption made in the application of Approach 1, which requires the entity to assert its intent and ability to hold the debt security until recovery.

5.3.4.3 Recognition and Measurement of a Tax-Planning Strategy

ASC 740-10-30-20 states the following about recognition and measurement of a tax-planning strategy:

When a tax-planning strategy is contemplated as a source of future taxable income to support the realizability of a deferred tax asset, the recognition and measurement requirements for tax positions in paragraphs 740-10-25-6 through 25-7; 740-10-25-13; and 740-10-30-7 shall be applied in determining the amount of available future taxable income.

To be contemplated as a possible source of future taxable income, a tax-planning strategy (and its associated taxable income) must (1) meet the more-likely-than-not recognition threshold and (2) be measured as the largest amount of benefit that is more likely than not to be realized.

Further, regarding measurement of the benefits of a tax-planning strategy, ASC 740-10-30-19 states, in part:

Significant expenses to implement a tax-planning strategy or any significant losses that would be recognized if that strategy were implemented (net of any recognizable tax benefits associated with those expenses or losses) shall be included in the valuation allowance.

The examples below illustrate the measurement of a valuation allowance in three different scenarios: (1) when no tax-planning strategy is available, (2) when the cost of implementing a tax-planning strategy under ASC 740 has an incremental tax benefit, and (3) when the cost of implementing a tax-planning strategy under ASC 740 has no incremental tax benefit. For all three examples, assume that “cumulative losses in recent years,” as discussed in ASC 740-10-30-21 and Section 5.3.2.1, do not exist.

Example 5-18

No Tax-Planning Strategy Is Available

Assume the following:

The entity operates in a single tax jurisdiction where the applicable tax rate is 25 percent.
The measurement date for DTAs and DTLs is in 20X1.
A $10,000 operating loss carryforward will expire on December 31, 20X2. No carryback refunds are available.
Taxable temporary differences of $2,000 exist at the end of 20X1, $1,000 of which is expected to reverse in each of years 20X2 and 20X3.
No qualifying tax-planning strategies to accelerate taxable income to 20X2 are available.
The following table illustrates, on the basis of historical results and other available evidence, the estimated taxable income exclusive of reversing temporary differences and carryforwards expected to be generated during 20X2:

The following table shows the computation of the DTL, DTA, and valuation allowance at the end of 20X1:

A valuation allowance of $1,000 is necessary because $4,000 of the $10,000 of operating loss carryforward will expire in 20X2.

Example 5-19

Cost of Tax-Planning Strategy Has an Incremental Tax Benefit

Assume the following:

The entity operates in a single tax jurisdiction where the applicable tax rate is 25 percent.
The measurement date for DTAs and DTLs is in 20X1.
A $9,000 operating loss carryforward will expire on December 31, 20X2. No carryback refunds are available.
Taxable temporary differences of $10,000 exist at the end of 20X1. The temporary differences result from investments in equipment for which accelerated depreciation is used for tax purposes and straight-line depreciation is used for financial reporting purposes.
Taxable temporary differences of $2,000 are expected to reverse in each of years 20X2–20X6.
The following table illustrates, before any qualifying tax-planning strategies are considered and on the basis of historical results and other available evidence, the estimated taxable income exclusive of reversing temporary differences and carryforwards expected to be generated during 20X2:
Management has identified a qualifying tax-planning strategy to sell and lease back the equipment in 20X2, thereby accelerating the reversal of the remaining temporary difference of $8,000 to 20X2.
The estimated cost attributable to the qualifying strategy is $1,000.

The following table illustrates the computation of the DTAs and valuation allowance at the end of 20X1:

When the effects of the qualifying tax-planning strategy are taken into account, the total estimated taxable income for 20X2 of $12,000 ($4,000 estimated taxable income plus $8,000 accelerating the reversal of the taxable temporary difference) exceeds the $9,000 operating loss carryforward. However, in a manner consistent with the guidance in ASC 740-10-55-44 (and as illustrated in ASC 740-10-55-159), a valuation allowance for the cost of the tax-planning strategy, net of any related tax benefit, should reduce the tax benefit recognized. Therefore, a valuation allowance of $750 would be required. The tax benefit of the cost of the strategy in this example is recognized as a reduction of the valuation allowance because sufficient taxable income is available to cover the cost in 20X2 after the results of the strategy are considered.

Example 5-20

Cost of Tax-Planning Strategy Has No Incremental Tax Benefit

Assume the following:

The entity operates in a single tax jurisdiction where the applicable tax rate is 25 percent.
The measurement date for DTAs and DTLs is in 20X1.
A $10,000 operating loss carryforward will expire on December 31, 20X2. No carryback refunds are available.
Taxable temporary differences of $3,000 exist at the end of 20X1. The temporary differences result from investments in equipment for which accelerated depreciation is used for tax purposes and straight-line depreciation is used for financial reporting purposes.
Taxable temporary differences of $1,000 are expected to reverse in each of years 20X2–20X4.
The following table illustrates, before any qualifying tax-planning strategies are considered and on the basis of historical results and other available evidence, the estimated taxable income exclusive of reversing temporary differences and carryforwards expected to be generated during 20X2:
Management has identified a qualifying tax-planning strategy to sell and lease back the equipment in 20X2, thereby accelerating the reversal of $2,000 of taxable income to 20X2.
Estimated costs attributable to the qualifying tax-planning strategy are $500.

The following table illustrates the computation of the DTAs and valuation allowance at the end of 20X1:

5.3.5 Determining the Need for a Valuation Allowance by Using the Four Sources of Taxable Income

The example below illustrates all the concepts in Section 5.3 and shows how, when positive and negative evidence is present, an entity uses the four sources of taxable income described in ASC 740-10-30-18 to determine whether a valuation allowance is required.

Example 5-21

Assume the following:

Entity A is measuring its DTAs and DTLs as of year 20X2.
Entity A operates and is subject to tax solely in Jurisdiction X.
The enacted tax rate is 21 percent for all years.
The DTA balance at the beginning of 20X2 is $0.
Tax law permits a two-year carryback and five-year carryforward of operating losses.
Entity A’s DTL is scheduled to reverse over a period of five years.

Computation of the DTA and DTL

Entity A has identified all temporary differences existing at the end of 20X2. The measurement of DTAs and DTLs is as follows:

Available Evidence

In assessing whether a valuation allowance is required, A has identified the following evidence:

Negative evidence
- Entity A has been historically profitable but has incurred a loss in 20X2 as a result of one-time restructuring of certain operations.
- Entity A operates in a traditionally cyclical business.7
Positive evidence
- Tax benefits have never expired unused.8
- Entity A has a strong earnings history at the close of 20X2.9 While it incurred a loss in 20X2, the loss was an aberration that resulted from one-time charges, and A is expected to return to profitability in 20X3.
- Entity A is not in a cumulative loss position in 20X2 and does not forecast that it will be in a cumulative loss position in 20X3.
- Entity A has identified certain tax planning strategies that (1) it has determined are prudent, feasible, and outside of the company’s normal operations and (2) would accelerate taxable amounts so that the expiring carryforward of the NOL generated in 20X2 could be used.

Assessment of Realization

On the basis of the available evidence, management has concluded that it is more likely than not that some portion of the $93 of tax benefits from $440 ($275 + $165) of deductions will not be realized in future tax returns.

To determine the amount of valuation allowance required, management has considered four sources of taxable income. As part of this analysis, the company is forecasting taxable income of $25 in each of the next five tax years (i.e., the carryforward period) and has $55 of taxable income in the carryback period. The company is forecasting $35 of taxable income from future reversals of existing taxable temporary differences that will reverse over the carryforward period. Finally, the company has identified a tax-planning strategy in which its investment portfolio of tax-exempt securities could be sold and replaced with higher-yielding taxable securities, generating taxable income of $26 and implementation costs of $1 during the carryforward period. The company’s analysis is as follows:

Upon considering the timing, amounts, and character of the four sources of taxable income available for use of existing tax benefits, management concludes that all such income can be used without limitation. For example, all of the taxable temporary differences will reverse during the same period as the deductible temporary items. Therefore, A expects to realize $240 of $440 of deductions and will record a valuation allowance of $42 ($200 × 21%) on the $200 of deductions that is not expected to be realized.

Entity A would record the following journal entry:

The following is an analysis of the facts in the above example:

Entity A may need to estimate the amount and timing of future income in determining whether it is more likely than not that existing tax benefits for deductible temporary differences and carryforwards will be realized in future tax returns.
In determining the valuation allowance, A was required to consider (1) the amounts and timing of future deductions or carryforwards and (2) the four sources of taxable income that enable utilization: future taxable income exclusive of reversals of temporary differences, taxable income available for carryback refunds, taxable temporary differences, and tax-planning strategies. If A had been able to conclude that a valuation allowance was not required on the basis of one or more sources, A would not have needed to consider the remaining sources. In this case, A needed to consider all four sources, after which it determined that a valuation allowance was required.
The assessment is based on all available evidence, both positive and negative.

Footnotes

The conclusion reached in this example would have been the same even if the NOL’s carryforward period had been indefinite.

The CARES Act temporarily eliminated the 80 percent limitation for NOLs used in taxable years beginning before January 1, 2021. It also temporarily increased the business interest expense limitation from 30 percent to 50 percent for taxable years beginning in 2019 and 2020 and allows entities to elect to use their adjusted taxable income for the last taxable year beginning in 2019 as their adjusted taxable income for taxable years beginning in 2020. As a result, entities will need to consider how this temporary change affects their previous conclusions about the realizability of deferred taxes. For example, an NOL used in 2019 will not be limited to a percentage of taxable income and thus an indefinite-lived taxable temporary difference reversing in 2019 will not be limited as a source of taxable income with respect to this NOL. For further information about the CARES Act and the subsequent income tax accounting, see Deloitte’s April 9, 2020 (updated September 18, 2020), Heads Up.

The projections referred to here are management’s estimates of future income based on metrics and qualitative information used by the entity, which might include future growth assumptions and other subjective management assertions.

ASU 2016-13 was issued in June 2016 and significantly amends the guidance in U.S. GAAP on the measurement of financial instruments. In November 2019, the FASB issued ASU 2019-10, which established the following effective dates for ASU 2016-13: for public business entities (PBEs) that meet the U.S. GAAP definition of an SEC filer, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods therein. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Indicates a source of evidence that can be verified objectively

See footnote 7.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.