If a valuation allowance is decreased (released) in the current year, the corporation's effective tax rate is lower than if the valuation allowance had not decreased.

Question

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When a valuation allowance is released, the amount of deferred tax assets included in the effective tax rate calculation increases, resulting in a lower effective tax rate. This is because the deferred tax assets that were previously offset by the valuation allowance can now be utilized to offset taxable income.

If a Valuation Allowance Is Decreased (Released) in the Current