What is Checkersrallys' process for reviewing deferred tax assets, and how often are valuation allowances adjusted?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes, which requires the Company to recognize income tax benefits and expense of the changes in income tax assets and liabilities. Deferred tax assets must be reduced by a valuation allowance in certain circumstances. Realization of deferred tax assets is dependent on generating sufficient taxable income prior to the expiration of any tax attributes. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are adjusted as necessary. After reviewing all relevant factors, including cumulative losses during the last three years, management believes that it is more likely than not that a portion of the Company's deferred tax assets will not be realized in a future period. As of December 30, 2024 (Successor) and January 1, 2024 (Successor), the valuation allowance has been adjusted to the amount of deferred tax assets, net of reversing deferred tax liabilities, that management believes will not be realized.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company reviews deferred tax assets periodically for recoverability. Valuation allowances are adjusted as necessary. Realization of deferred tax assets depends on the company generating sufficient taxable income before any tax attributes expire.
After reviewing all relevant factors, including cumulative losses during the last three years, Checkersrallys's management believes that it is more likely than not that a portion of the company's deferred tax assets will not be realized in a future period. As of December 30, 2024, and January 1, 2024, the valuation allowance has been adjusted to the amount of deferred tax assets, net of reversing deferred tax liabilities, that management believes will not be realized.
For a prospective Checkersrallys franchisee, this means that the company is actively monitoring its tax assets and making adjustments based on its financial performance. The periodic review and adjustment of valuation allowances suggest a proactive approach to managing deferred tax assets. However, the statement that 'management believes that it is more likely than not that a portion of the Company's deferred tax assets will not be realized in a future period' indicates potential financial challenges or uncertainties that could impact the company's future tax benefits.