Tax Credit Uncertainty

The Wall St. Journal has a story in today’s paper (registration required) looking at whether Nortel will get to keep $3.9-billion of deferred tax credits on its balance sheet. The WSJ cites an analyst – Glass Lewis’ Jason Williams – who believes Nortel may have to write down the value of the credits, which could be used in the future to offset tax liabilities on profits. (assuming CEO Mike Zafirovski’s strategic makeover is successful and Nortel becomes profitable again) Nortel argues it has yet to write down the value of the tax credits because they don’t expire for a few more years, and that it’s following U.S. generally accepted accounting principles. In securities filings, however, Nortel notes that it decided not to take write-downs on the tax credits because of its forecasts of future profits and because most of the credits won’t expire for several years or more.

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