Originally Posted by
monkeyboy511
My apologies for not being more clear. It is my understanding when taking depreciation of an asset (consideraing both GAAP and FASB for Corporations, not LLC's, S-Corp's, etc..) a corporation is allowed to depreciate certain tangible assets for the purpose of reducing their tax burden on a scheduled bases - typically 1- 10 years. I liken the benefit of depreciation as a temporary "loan" from the Gov't. The Gov't loses revenue when allowing businesses to lower their taxable income (EBITA) owing to non-cash outlay associated with depreciation. Current Federal tax laws provide rules and regulations requiring corporations to "pay back" portions (in some cases all) of the amount depreciated in a defined period of time. The Gov't will get their money one way or another, or one may find themselves behind bars. The exact IRS Tax Code defining this requirement escapes me at the moment, however I am aware of the requirement to pay back, and/or account for the depreciation within in speciafied time period, (two fiscal years if I remember correctly or the sale (change of disposition of an asset)) at a corporate tax rate of 35% despite Federal corporate tax rate being 21% for FY23. That being said, F9 may have temporarily avoided taxes for FY23, but the chickens will be coming home to roost in the not too distant future. If F9 doesn't have the money to pay their tax burder, the Gov't could move to seize assets for the purpose of sale and ultimately payment of F9's debt to the Fed Gov't. and/or place a tax lein on property/assets. It's a bit more complicated for publicly traded companies/SEC. *disclaimer: When I studied this stuff there were the "Big-6" accounting firms, now we have have the "Big-4", so my info may be a little dated.
I don’t disagree with anything you said BUT I don’t think that is what they did. Again, I can definitely be wrong here…
In the last three years we have had a loss. (225) 2020, (102) 2021, (37) 2022…(364M) ish in losses that are allowed to be deferred against future tax gains. Deferred tax assets. So our DTAs have ballooned up so much that there is a greater than 50% chance we won’t be able to produce enough profit to realize those DTAs in a timely manner despite them never expiring under current tax code. Since they are considered assets they have ballooned our company valuation inappropriately as they are phantom assets. As such there is a way to rectify the asset with a contra asset. The valuation allowance.
“To reconcile the balance sheet and the company’s actual value, a valuation allowance for the deferred tax assets reduces the value of the assets carried on the balance sheet. Removing these “phantom” assets reduces the distortion of company value, aligning values on the balance sheet more closely with the actual value of the business.” “
The offsetting credit is usually to the income tax expense, which has the effect of increasing it, thereby reducing net income.” -various websites
When this account was created It removed, or
more accurately balanced, 37M worth of DTAs. So despite making money in 2023 we now show a loss. This can be reversed at anytime if it appears we will be able to utilize all available DTAs. However, to do so we will have to show the reversal of the allowance as income again to be taxed appropriately.