On Friday, I asked a tax colleague whether anybody had examined the issue of how the market values DTA’s and DTL’s from fair value accounting? I got a “sort of” answer that didn’t sound too convincing.

I was thinking that this is a low-hanging fruit kind of project. That is, many companies (well certain industries anyway) are electing the option to report financial instruments at fair value. This creates DTA’s and DTL’s that in many cases will merely reverse over time .. and won’t be realized over time in terms of lower / higher taxes.

I thought of this while in class the other day.. we were talking about fair value accounting for liabilities .. and then we did the deferred taxes for the accounting, and I thought “how does the market pay attention to these.”

Tax colleagues – pipe in here!