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follow up to deferred charges question - see detail

Eddie Price's Profile

My company is working with a consultant to generate Work Opportunity Tax Credits.  50% of the fee is paid at time of service, 50% is deferred until credit is utilized.  both the 50% fee paid and 50% fee owed is contingent upon the company being able to utilize the credit.  i.e. if IRS disallows a credit, we get a refund on the fee paid.  also, if the company changes ownership prior to using up the NOL and the new owners cant utilze the credits, then we get a refund of fees paid.  Question:  can the 50% of fees paid be treated as a deferred charge on the balance sheet as they are contingent on utilization of the credits at some future date?

Answers

Jeff Fisher
Title: Audit Manager
Company: Windes & MCClaughry
(Audit Manager, Windes & MCClaughry) |

At a glance, it sounds like you could potentially book a receivable for the tax credits with an allowance rather than a deferred charge. The consultant fee would be expensed as services are provided. I wouldn't book a separate gain contingency for the fees paid. So even though these transactions are offsetting, they would need to be accounted for separately.

Eddie Price
Title: CFO
Company: Shoe Sensation
(CFO, Shoe Sensation) |

Company has an NOL and doesn't book the deferred tax asset, so i can't record the tax credits as a receivable. The consultant fee is contingent upon using the tax credit at some future date. if the credits can't be used, i.e. disallowed by the IRS, credits expire, or company changes ownership and new owners can't use the credits, then the consultant fees are reimbursed to the company. My question: as the fees are contingent upon the utilization of the tax credits at some future date can they be tied up on the balance sheet as a deferred charge or prepaid? thanks, comments welcome. fiscal year ends in two weeks so any help is appreciated before i meet with the auditors.

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