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Can someone explain 704(b) in simple terms?
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You need to go through a valuation allowance to determine if a source of future income will allow the full NOL to be used in a future period.
U can offset naked credits with 80% of the post tcja nols when doing ur va assessment
This is my favorite tax accounting term.
The NOL you can carry forward is the 382 limitation and your post acquisition NOLs. To realize the DTA, your client needs to do tax forecast that they can use this in the future else will need to put valuation allowance.
You can use all of the NOL subject to the 80% limitation, but that limitation is based on taxable income in the future period not the NOL amount. The 382 limitation is a yearly limitation based on the acquisition transaction. Not sure why you’d haircut NOLs because they are the 80% type.
What if we acquired a DTL as part of the acquisition, do I still need to do the assessment? Can I net the acquired NOL against the acquired DTL?
You have to analyze all of the DTAs for realizability. You can’t just net them.
Mentor
None of them need to be written off unless the 382 limit as zero (as they might need to be for pre-TCJA NOL).
As others have pointed out a Val allowance may or may not be needed, but they should be items on balance sheet.
Agree but if your 382 limit is low, you’ll likely need a VA unless you can prove otherwise. It’s pretty difficult to project income 20 years from now.