Core Model Enhancements - Tax Schedule

[ileiser]

In the tax schedule tab, the formula for cells G18:K18: Why is amortization of other intangibles not also added to Pre-Tax Income (GAAP) to calculate the Income Tax Expense (GAAP)?

To be more specific, the current formula in G18 is =(G7+G10)*$G$25. Is there any reason why =(G7+G10+G11)*$G$25 would not be correct?

Thank you.

Illana Leisre

[wsthost]

Amortization of Goodwill is not a tax-deductible expense. As such, it is a permanent difference in taxes. So it is not added back in that specific calculation since it does NOT reduce Taxable Income, resulting in higher income taxes since it is not deductible.

To answer your direct question, Amortization of Intangibles is NOT added back in that specific calculation because it DOES reduce Taxable Income and thus, one pays lower taxes. So really, the adjustment is for Goodwill (usually zero amortization anyway), not for other intangibles.

[ileiser]

Thank you for your quick reply.

Based on your answer, I have a further question--then why is this same line item (Amortization of Other Intangibles) added back in order to calculate Pre-NOL taxable income? G12=sum(G7:G11)

Regards,
Illana

[wsthost]

The add-back to row 12 is to increase Taxable Income (for tax purposes) to end up paying higher taxes since you don't get the deduct (as defined in the notes, non-tax deductible items added back).

[ileiser]

Thanks--but this seems to contradict the treatment on line 18. In other words, in one cell (G12), it's added back because it is not tax-deductible, but in the other cell (G18), it is not being added back to calculate income taxes.

Shouldn't it increase taxable income in both calculations?

[wsthost]

Yes, since we are defining both as non-tax-deductible, that is correct, they should both have the same treatment.
However, MOST of the time, analysts do not adjust for non-tax-deductible amortization of other intangibles and the convention in calculating GAAP taxes (albeit wrong) is to ONLY include add-back for Goodwill Amortization.

[ileiser]

Thank you very much. I really appreciate your help!