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Journal of Undergraduate Research

Keywords

accounting, deferred taxes, cash flow, predictability

College

Marriott School of Management

Department

Accountancy

Abstract

Companies are sometimes required to pay taxes on events that have not yet occurred. This tax is called a deferred tax asset or DTA. These companies will receive a refund on this special type of tax, but the refund won’t be dispersed until years later. (Sometimes, this can take up to twenty years.) The slow reimbursement of a tax refund inhibits a company’s ability to grow, hire, and innovate as it unnecessarily constrains cash flow. Additionally, since this type of tax can be 7-13% of annual operating profits, the refunds are often very sizeable amounts.

The reimbursement process can be accelerated if taxing authorities and other decision makers have a better understanding of when these future taxable events will happen. Our research centers around understanding these future events and thus accelerating the tax-refund process.

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