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Frequently Asked Questions
Net operating loss carryforwards create deferred tax assets because they represent future tax deductions. The DTA equals the NOL times the expected future tax rate. Post-2017 NOLs can be carried forward indefinitely but are limited to 80% of taxable income in the carryforward year.
Deferred tax assets and liabilities are remeasured using the enacted rate expected to apply when the temporary difference reverses. The adjustment goes through income tax expense in the period of enactment, not when the rate actually takes effect.
A valuation allowance is needed when it's more likely than not (>50%) that some or all of the DTA won't be realized. Consider future taxable income projections, tax planning strategies, and reversal of existing DTLs. It's a judgment call requiring analysis of positive and negative evidence.
Deferred taxes on items in other comprehensive income (like unrealized gains on AFS securities) are also recorded in OCI, not income tax expense. This maintains the intraperiod tax allocation principle—tax follows the related item.