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Accounting for income taxes: Valuation allowance

WHITE PAPER | December 14, 2023

Authored by RSM US LLP

This whitepaper is the fourth in a series of whitepapers to be used a resource in understanding and analyzing the accounting for income taxes under FASB Accounting Standards Codification (ASC) 740, “Income Taxes”. This whitepaper addresses the realizability or recoverability of deferred tax assets. Deferred tax assets may require a valuation allowance to be recorded to reduce the deferred tax asset to the amount that is expected to be realized. The realization of deferred tax assets would be evaluated using the more-likely-than-not standard, i.e. a valuation allowance would be recognized if it is more likely than not that some or all of the deferred tax asset will not be realized. ASC 740 outlines the sources of taxable income and types of evidence to consider when determining whether to record a valuation allowance. A valuation allowance is an estimate that requires careful consideration of all fact and circumstances. This whitepaper does not address every aspect of accounting for income taxes and should therefore be read in conjunction with the FASB Accounting Standards Codification (ASC) 740 "Income Taxes".

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This article was written by RSM US LLP and originally appeared on 2023-12-14.
2022 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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