What is Checkersrallys' responsibility regarding the review of deferred tax assets?
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' 2025 Franchise Disclosure Document, the company accounts for income taxes in accordance with ASC 740, Income Taxes. This requires Checkersrallys to recognize income tax benefits and expenses related to changes in income tax assets and liabilities. Deferred tax assets must be reduced by a valuation allowance under certain conditions.
Realization of these deferred tax assets depends on Checkersrallys generating sufficient taxable income before tax attributes expire. Therefore, Checkersrallys is responsible for periodically reviewing these deferred tax assets to determine their recoverability. As part of this review, valuation allowances are adjusted as necessary to reflect management's belief about the realizability of these assets.
After reviewing factors such as cumulative losses over the last three years, Checkersrallys' management determines whether it is more likely than not that a portion of the company's deferred tax assets will not be realized in the future. As of December 30, 2024, and January 1, 2024, the valuation allowance has been adjusted to reflect the amount of deferred tax assets, net of reversing deferred tax liabilities, that management does not expect to be realized.