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Cutting the corporate tax rate - as the President has suggested doing - sounds good, but it...

Cutting the corporate tax rate - as the President has suggested doing - sounds good, but it could lead to billions in write-downs for company's with large deferred tax assets on their books. The pain could be especially acute at the large financials - already trading at fractions of tangible book because of wariness over how assets are being valued. Citigroup (C) leads with $53.3B of DTAs.
Comments (10)
  • It takes rather pretzel-like contortions to turn a corporate tax cut into a bad thing, but I guess that never stops one from trying.
    9 Nov 2012, 10:50 AM Reply Like
  • Boo Hoo. The tax change that's really needed is an increase of the individual limit of $3000/yr on Capital Losses.
    9 Nov 2012, 11:28 AM Reply Like
  • Why do the write-downs have to occur?

     

    Do they expire before they can be used?

     

    Can they be only so big based upon the current tax rate?

     

    OK, so I found this...

     


    Deduct from Tier 1 capital the amount by which deferred tax assets dependent on future taxable income exceed the lesser of

    1. Amount of deferred tax assets the bank expects to realize within one year based on projected future taxable income or

    2. 10% of the bank's Tier 1 capital before deducting certain disallowed assets

     

    I guess it's point 1 that's the problem.
    9 Nov 2012, 11:32 AM Reply Like
  • Oh great.

     

    As an example, Ford just went all-in on $11.532B in accumulated tax credits at the end of last year, which resulted in showing "after tax" profits at $20.213B or $4.94 per share on the books, rather than $8.681B or $2.12 per share in actual operating earnings. This is standard practice in the wonderful world of accounting for assets on the balance sheet.

     

    If Ford is forced to write down a significant percentage of that non-cash asset, then the resulting non-cash losses could essentially wipe out all cash earnings for the year. And rather than having about 5 years worth of taxes stashed away, suddenly Ford will start paying cash taxes much sooner, rather than booking them each quarter against the credit asset.

     

    Which means even more confusion for the many folks that have no understanding of such accounting, nor will they bother to try to understand, only pointing at the "unexpected" (to them) bottom line results.
    9 Nov 2012, 11:40 AM Reply Like
  • I think this small string of comments explains everything perfectly. The tax code is ridiculously complicated. What we really need is a rewrite to simplify the code so that it doesn't require an MBA or PhD to understand what you're reading. The level of complexity just begs for companies to exploit the ambiguities and hope that they can convince someone that there interpretation of what is written is legal.
    9 Nov 2012, 01:21 PM Reply Like
  • I must say you are 100% correct as far as I am concerned. I have no idea what any of this means. I'm not even sure a MBA or PhD could fully decipher the rules and regulations.....I do hope the powers to be can come together and simplify this complicated concern (however, I doubt it).
    9 Nov 2012, 02:09 PM Reply Like
  • Somebody's ox will get gored no matter how it's done.
    9 Nov 2012, 03:15 PM Reply Like
  • I just find it fascinating that The Regime has suddenly, and apparently out of the blue, decided that "rich corporations" like banks need a tax break.

     

    It sounds like the exact opposite of what he and the 95%-ers or 99%ers or whatever have been fussing about for the last year or two.
    9 Nov 2012, 05:33 PM Reply Like
  • Do friends in high places ring a bell?
    9 Nov 2012, 11:01 PM Reply Like
  • I must be an idiot (don't everyone agree at the same time), who and what are we rooting for...More taxes, less taxes, fair share taxes, middle class more taxes, middle and lower class less taxes, tax breaks or less taxes for big corporations and top 1% or more taxes for the top 1% and big corporations?
    10 Nov 2012, 01:35 PM Reply Like
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