How does Surestay Hotel By Best Western limit the recognition of deferred tax assets?
Surestay_Hotel_By_Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
free rate as the discount rate for all asset classes.
(n) Income Taxes
The Company utilizes the liability method of accounting for income taxes whereby deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not realized in future period.
The Company assesses whether a valuation allowance should be established based on its determination of whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence is considered when determining the necessity of the valuation allowance as well as the sources of taxable income supporting the realization of the deferred tax assets, including taxable income in carryback years, future reversals of existing taxable temporary differences, tax-planning strategies and projected taxable income from future operations.
Based on the history of positive earnings, in addition to the expected reversal of taxable temporary differences and forecasted positive results of operations, management determined, based on its assessment of both positive and negative evidence and objective and subjective evidence, that it is more likely than not that the Company will realize its deferred tax assets, with the exception of certain deferred tax assets related to foreign net operating losses ("NOL"), and foreign tax credit ("FTC") carryforwards. The Company has provided a valuation allowance against net deferred tax assets for certain foreign loss entities as the realization of such assets are not more likely than not to occur.
As of November 30, 2024, the Company has foreign NOL carryforwards of $15.5 million and U.S. FTC carryforwards of $0.6 million. Of the $15.5 million in foreign NOLs, $1.9 million is subject to expiration beginning in 2029, while the remaining $13.6 million is not subject to expiration and will carry forward indefinitely. The FTC carryforwards were generated in the years ended November 30, 2019, and 2020, in the amounts of $0.2 million and $0.4 million, respectively, a
Source: Item 23 — Receipts (FDD pages 88–286)
What This Means (2025 FDD)
According to the 2025 FDD, Surestay Hotel By Best Western utilizes the liability method for accounting for income taxes. This means deferred taxes are based on the difference between financial statement and tax values of assets/liabilities, using the tax rates expected when those differences reverse.
However, Surestay Hotel By Best Western limits the recognition of deferred tax assets to amounts that management believes are more likely than not to be realized in the future. This means that the company only recognizes tax assets that they are reasonably sure they will be able to use in the future to reduce their tax obligations.
Surestay Hotel By Best Western assesses whether a valuation allowance is needed by determining if it is more likely than not that some or all of the deferred tax assets will not be realized. This involves considering both positive and negative evidence, such as past earnings, expected reversals of temporary differences, tax planning strategies, and projected future taxable income. As of November 30, 2024, Surestay Hotel By Best Western had foreign net operating loss carryforwards of $15.5 million and U.S. foreign tax credit carryforwards of $0.6 million. A valuation allowance has been provided against net deferred tax assets for certain foreign loss entities because the realization of such assets are not more likely than not to occur.