The Tax Cut and Jobs Act of 2017 reduced the US corporate tax rate from a maximum 35% to a flat rate of 21%. As a result, companies were required to "revalue" their deferred tax assets and liabilities to reflect the new tax rates. In general, a firm with a substantial pool of US Federal NOL Carryforwards reported in the deferred tax asset section (the DTA for NOLS) experienced a: O No impact on deferred tax assets or liabilities because the cash tax value of an NOL carryforward does not depend on the statutory tax rate O Reduction in the book value of the DTA for NOLS with the offset an increase in tax expense O Increase in market value reflecting the reduced value of the NOL tax shields Increase the book value of the DTA for NOLS with the offset a decrease in tax expense

The Tax Cut and Jobs Act of 2017 reduced the US corporate tax rate from a maximum 35% to a flat rate of 21%. As a result, companies were required to "revalue" their deferred tax assets and liabilities to reflect the new tax rates. In general, a firm with a substantial pool of US Federal NOL Carryforwards reported in the deferred tax asset section (the DTA for NOLS) experienced a: O No impact on deferred tax assets or liabilities because the cash tax value of an NOL carryforward does not depend on the statutory tax rate O Reduction in the book value of the DTA for NOLS with the offset an increase in tax expense O Increase in market value reflecting the reduced value of the NOL tax shields Increase the book value of the DTA for NOLS with the offset a decrease in tax expense

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter3: Taxes On The Financial Statements

Section: Chapter Questions

Problem 21P

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The 2017 Tax Cuts and Jobs Act created a territorial tax system where taxes are accrued in the country where the income is earned. True False
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In September 2008, the IRS changed tax laws to allow banks to utilize the tax loss carryforwards of banks they acquire to shield up to 100% of their future income from taxes (prior law restricted the ability of acquirers to use these credits). Suppose Fargo Bank acquired Covia Bank and with it acquired $58 billion in tax loss carryforwards. If Fargo Bank was expected to generate taxable income of $8 billion per year in the future, and its tax rate was 30%, what was the present value of these acquired tax loss carryforwards given a cost of capital of 8%? How would the present value change under current law which restricts the amount of the deduction to 80% of pre-tax income? Question content area bottom Part 1 If Fargo Bank was expected to generate taxable income of $8 billion per year in the future, and its tax rate was 30%, what was the present value of these acquired tax loss carryforwards given a cost of capital of 8%? The present value of these acquired tax loss…