Continued from SSAP No. 101 update and Q&A observations
Similar to SSAP No. 10R, a statutory valuation allowance is utilized to calculate the adjusted gross deferred tax assets. Under paragraph 7.e. of SSAP No. 101, gross deferred tax assets are reduced by a statutory valuation allowance adjustment if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the gross deferred tax assets will not be realized. The statutory valuation allowance adjustment is determined in a manner consistent to FAS 109 and reduces the gross deferred tax assets to the amount that is more-likely-than-not to be realized.
Gross deferred tax assets are reduced by the statutory valuation allowance to arrive at the adjusted gross deferred tax assets. It is the adjusted gross deferred tax assets that are considered in determining the admitted adjusted gross deferred tax assets through the admissibility calculation as discussed below.
Gross deferred tax assets
- Statutory valuation allowance
Adjusted gross deferred tax assets
The application of the statutory valuation allowance does not result in a statutory valuation allowance reserve within the statutory financial statements, and should not be included in the nonadmitted assets. Rather, it results in a reduction of the gross deferred tax asset in the annual statement.
The statutory valuation allowance is determined on a separate company, reporting entity basis and depends on the entity having sufficient taxable income of the appropriate character within the carryback or carryforward period available under tax law. All evidence, both positive and negative, should be considered to determine whether, based on the weight of available evidence, a valuation allowance is needed. A reporting entity is not required to consider all sources of taxable income if one or more sources are alone sufficient to support the conclusion that no valuation allowance is necessary. However, if a conclusion is reached that a statutory valuation allowance adjustment is necessary, all of the potential sources of taxable income must be considered in order to determine the amount of the adjustment.
In determining the amount of the adjusted gross deferred tax asset under paragraph 7.e., the reporting entity shall consider reversal patterns of temporary differences to the extent necessary to support establishing or not establishing a statutory valuation allowance adjustment. The consideration of reversal patterns does not require scheduling beyond that necessary to support establishing or not establishing a statutory valuation allowance adjustment. If scheduling is considered necessary, the amount of scheduling required depends on the facts and circumstances of the reporting entity.