If a company is required to pay a fine for violating environmental laws, U.S. GA

Question

If a company is required to pay a fine for violating environmental laws, U.S. GAAP treats that fine as an expense. U.S. Tax Law, however, does not allow a company to take any tax deduction for fines resulting from violations of law. What are the deferred tax consequences of this difference?

Select one:

a. This difference between GAAP and tax law creates a future taxable amount that results in a deferred tax liability.

b. This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax asset.

c. This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax liability.

d. This difference between GAAP and tax law creates a permanent difference that results in neither a future taxable amount nor a future deductible amount.

e. This difference between GAAP and tax law creates a future taxable amount that results in a deferred tax asset.

Explanation / Answer

e. The difference between GAAP and tax law creates a future taxable amount that results in a deffered tax asset.

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