What it is
A deferred tax asset needs a valuation allowance when it is more likely than not that some or all of it will not be realized. The assessment weighs positive and negative evidence and tests whether future taxable income, reversing taxable temporary differences or tax planning strategies support each asset.
This workbook lists each asset with the support for realization, logs weighted evidence with a screen indication, and schedules forecast taxable income against carryforwards that expire. It computes the allowance needed, flags an allowance that is too low for the expiring amounts or that conflicts with the evidence, and builds the adjusting entry.
When to use it
- At each reporting date for an entity with net operating losses, credits or deductible temporary differences.
- When evidence changes, such as a loss year, a forecast revision or a change in tax planning.
- When an auditor requests the documented realizability assessment.
What’s inside
- DTAs tab: 15 assets with character, expiration year and three sources of support
- Evidence tab: 20 items with type, category, verifiability and weight, and a screen indication
- IncomeSources tab: forecast income against carryforwards expiring by year
- Allowance tab: summary, cross-checks and adjusting entry
- Flags for support above the asset and for a missing memo
Standard cited
This template follows ASC 740. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
What are the sources of taxable income?
Future reversals of existing taxable temporary differences, future taxable income exclusive of reversing differences, taxable income in carryback years if the law allows, and tax planning strategies.
How is negative evidence weighted?
By how objectively it can be verified. Cumulative losses in recent years are strong negative evidence that is difficult to overcome without equally strong positive evidence, such as a contract or a nonrecurring cause for the losses.
Why test carryforwards by expiration year?
A carryforward that expires in a given year can only be used by income through that year. The tab compares cumulative capacity with cumulative expiring amounts to find the amount expected to expire unused.
Does the screen decide the conclusion?
No. The screen compares weighted totals and informs judgment. The conclusion and its support belong in the memo.
Related templates
- Deferred Tax Rollforward and Valuation Allowance Worksheet
- Income Tax Provision Workbook (ASC 740)
- Disclosure Checklist: Income Taxes (ASC 740)
- Rate Reconciliation Template (ASC 740)
Last updated 11/05/2026. All free templates.