Hi,
As I understood it, a company creates a Valuation Allowance account in the amount from the Deferred Tax Asset, that it expects to not recover based on the probability of insufficient future earnings to reap the full benefits of the Deferred Tax Asset.
My question is, why is it a prerequisite for a company to earn “sufficient” income to reap the full benefits of a deferred tax asset? in other words, why is there a contingency on the company’s earnings?