Deferred Tax Asset/Liability with an NOL

I am calculating DTA and need to know what effective tax rate to use. Background: LLC converted a C Corp effective 5/30/2014 Company is a start-up with no revenue - only development costs. At the end of an initial audit by Deloitte in preparation of a possible equity event. At the date of the conversion I need to calculate the Deferred tax assets & liabilities. I have identified the timing differences and I have calculated the loss that can not be used by the members of the LLC at the date of conversion. Question: With no revenue stream now or in the foreseeable future the company is only generating net losses. What effective tax rate do I use to multiply the timing differences and loss to date to create the Deferred Tax Asset?

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Jeff Johnson Partner • August 29, 2014

If you have a net DTA due to the loss position, the tax rate is likely to be a less significant issue because you will probably record a valuation allowance against the DTA resulting in no net asset on the books. The rate you should use to record the gross asset (before VA) should be the federal and state (net of federal benefit) tax rate that is expected to apply (under current law) in the future periods in which the deferred balances are expected to reverse. This is an inexact exercise and of course materiality will dictate how precise you need to be. Hope this is helpful.

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Deferred Tax Asset/Liability with an NOL

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