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If Deferred Tax Assets are long-term liabilities that have a habit of sticking around for a...

If Deferred Tax Assets are long-term liabilities that have a habit of sticking around for a very long time, do they feel like debt to the IRS? Or do they feel more like equity?

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Answer #1

Deferred tax asset is an asset for a taxpayer but a liability for IRS. Deferred tax asset is not treated as equity by the IRS. IT is treated as a long term liability by IRS.

It can be said that IRS may feel deferred tax asset as a debt, but the taxpayer in any future financial year may have deferred tax liability more than deferred tax asset. In that case, taxpayer has to pay tax to the IRS after offsetting Deferred tax asset.

It can't be treated as equity by IRS, as it is not a capital amount for IRS. As there is uncertainty involved with deferred tax asset, it is appropriate for IRS to treat deferred tax asset as a long term liability.

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