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Accounting for income taxes requires the application of significant judgment and the use of estimates. The SEC staff has focused on the quality of the disclosures around these judgments and estimates, frequently commenting on:
  • effective tax rate reconciliations, including the nature of the reconciling items, the drivers behind significant changes between periods, and whether those changes are expected to impact future periods;
  • valuation allowances; and
  • unremitted foreign earnings and unrecognized deferred tax liability on unremitted foreign earnings.
Comment Examples
Guidance references
  • We note that you reversed your deferred tax valuation allowance after considering the existence of recent cumulative income from continuing operations as a source of positive evidence. We also note that you regularly review deferred tax assets for recoverability based upon an analysis of all positive and negative evidence, including expected future book income based on historical data and the expected timing of the reversals of existing temporary differences. Please provide additional detail that supports your decision to reverse the valuation allowance, including the nature of the positive and negative evidence, as well as assumptions used in your analysis. Also, provide similar information that supports your determination of the deferred tax valuation allowance at year end.
  • We note that you have material non-US income and, based on your disclosure, that your cash balance is "primarily" located outside of the US. Please disclose in future filings the amount of unremitted foreign earnings and the unrecognized deferred tax liability on unremitted foreign earnings, if practicable, or a statement that such determination is not practicable. See ASC 740-30-50-2(b) and 2(c)
  • Please tell us each of the individual components of the benefits in your "other, net" reconciling item in your rate reconciliations. In addition, tell us your consideration for disclosing those items that account for more than 1.05 percentage points of your effective tax rate as stipulated in Rule 4-08(h)2) of Regulation S-X.
  • In future filings, please ensure you clearly disclose any material changes impacting your valuation allowance including the facts and circumstances that drove those changes. To the extent material differences exist between your income tax rate reconciliation and the overall change in the valuation allowance, your disclosures should highlight such material changes including the reasons for such changes.
  • We note that you present in your income tax footnote an effective tax rate excluding the impact of discrete tax items, which appears to be a non-GAAP measure. Please refer to the guidance in Item 10(e)(1)(ii)(C) of Regulation S-K which prohibits you from presenting non-GAAP measures on the face of or in the notes to your financial statements, and revise future filings to comply. Also, revise your similar disclosures in MD&A to provide all disclosures required by Item 10(e) of Regulation S-K.
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