What Can We Infer about a Firm's Taxable Income from Its Financial Statements?

Abstract

In this paper I review and describe the income tax disclosures currently required in firms' financial statements. I discuss many of the problems with trying to estimate a firm's actual tax liabilities and taxable income from the income tax expense and disclosures to the financial statements. In doing so, I reveal the conditions under which taxable income may most accurately be estimated from financial statements as well as those conditions which make this task difficult, if not impossible.