Tax Question - Interpreting a Corp Financial Release

[Tidybuoy]

I've got a question for the tax & financial guru's on the board.

I'm chatting on a stock board about a company who's qtrly financials were relaeased yesterday. I've been a long time follower of this company and I actually worked there for 20+ years.

The company has been doing very poorly over the past several years.

Heres the quote in the press release I'm interested in: A large portion of the year-over-year increase in net loss for the third quarter resulted from a non-cash charge of $4.2 million in income tax expense. The non-cash charge relates to a valuation allowance that was established by the Company as a result of uncertainty in realizing its deferred tax assets, which was due to the cumulative net losses generated in the last two years. For the third quarter of 2008, the pre-tax loss was $9.1 million compared to $8.7 million in the same period last year.


My understanding of tax losses is that a company can offset past gains with a current loss or defer this tax credit to offset future gains.

My question is: how far back and how far forward can this for. I think it's 10 years back and 20 forward - but I really don't know the actual rule.

In this company's situation, they lost money two years in a row, and I'm assuming the negative tax expense can be used to offset gains (and tax expense) that occured in the past. And, it's possible that the current tax credit is larger than prior gains?

Also, I know there are various tax issues between the tax books and internal books but I'm not sure how this all relates to this current earnings release.

If any tax guys can sum this up for me in a simple (it that's possible) explanation - I'd appreciate it greatly.