Early this year, ZeZe Inc. paid a $52,000 legal fee in connection with a dispute over ZeZe’s title to investment land. ZeZe’s auditors required the corporation to expense the payment on this year’s financial statements. According to ZeZe’s tax adviser, the payment is a nondeductible capital expenditure. ZeZe’s tax rate is 35 percent.
a. Compute the deferred tax asset or a deferred tax liability (identify which) resulting from this difference in accounting treatment.
b. When will the temporary difference reverse?