What does Carls consider when evaluating whether it is more likely than not that their deferred income tax assets are realizable?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
We evaluate, on a quarterly basis, whether it is more likely than not that our deferred income tax assets are realizable. In performing this analysis, we consider all available evidence, both positive and negative, including historical operating results, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards and potential tax planning strategies that may be employed to prevent NOL or tax credit carryforwards from expiring unused.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the company evaluates the realizability of deferred income tax assets on a quarterly basis. In doing so, Carls considers all available evidence, both positive and negative. This includes a review of historical operating results to identify trends in profitability and cash flow, which can indicate the company's ability to generate future taxable income.
Carls also considers the estimated timing of future reversals of existing taxable temporary differences. These reversals can create taxable income in future years, allowing the company to utilize deferred tax assets. The company also analyzes estimated future taxable income, excluding reversing temporary differences and carryforwards, to assess its underlying profitability. Furthermore, Carls considers potential tax planning strategies that may be implemented to prevent net operating loss (NOL) or tax credit carryforwards from expiring unused.
For the years 2024 and 2023, Carls maintained valuation allowances of $8,747 and $9,405, respectively, for a portion of their state income tax credits and certain state and foreign net operating loss (NOL) carryforwards. This is because Carls concluded that the realization of the tax benefit of such deferred income tax assets was not more likely than not. During fiscal year 2024, Carls decreased their valuation allowance by $658.