A valuation allowance reflects uncertainty that the taxpayer will be able to recover a deferred tax asset.

Question

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A valuation allowance is established when the taxpayer determines that it is more likely than not that a deferred tax asset will not be fully recoverable. This uncertainty may arise from factors such as future taxable income, changes in tax laws, or other uncertainties. Therefore, a valuation allowance reflects uncertainty regarding the ability of the taxpayer to recover a deferred tax asset.

A Valuation Allowance Reflects Uncertainty That the Taxpayer Will Be