Healy, Inc., reports an effective tax rate in its income tax footnote of 6%. The only reconciling item with regard to the hypothetical tax at 21% is a valuation allowance reversal of negative 15%. Which of the following statements is true concerning comparing Healy's effective tax rate with its competitors, all of whom have an effective tax rate between 20 and 24%?

Question

Quizplus · Accepted Answer

Healy's structural effective tax rate, when adjusted for the valuation allowance reversal, is close to the standard corporate tax rate and thus likely close to its competitors' rates. The reversal is a non-recurring event that temporarily reduces the effective tax rate, not an indication of more efficient tax management or tax shelter activities.