What can We Infer About a Firm's Taxable Income from Its Financial Statements?(Forum on Public Disclosure of Corporate Tax Returns‪)‬

INTRODUCTION The short answer: Usually, not much. A common method of estimating taxable income from financial statements is to gross-up the current portion of the tax expense on the income statement by the statutory tax rate. (1) This calculation assumes that the current tax expense represents the actual tax liability on the firm's filed tax return for the period. In many cases, however, this is not an accurate assumption. (2)