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Be careful with purchasing the below named companies too soon.

These companies will take a huge profit hit from lower tax rates
MARKETWATCH 10:56 AM ET 12/14/2017
Symbol Last Price Change
C 73.92up -1.22 (-1.62%)
GM 40.81up -0.59 (-1.43%)
AIG 58.11up -0.86 (-1.46%)
BAC 28.73down -0.11 (-0.38%)
F 12.46up -0.17 (-1.35%)
LMT 317.01down -0.78 (-0.25%)
IBM 154down +0.09 (+0.06%)
MS 52.64down -0.54 (-1.02%)
KMI 17.84up -0.01 (-0.06%)
CSCO 37.9 -0.25 (-0.66%)
GS 255.48down -0.08 (-0.03%)
QUOTES AS OF 04:00:12 PM ET 12/14/2017
They may be able to make it up in future years by paying less, but first some of them will have to take a big hit

If a federal tax reform bill is signed into law, a reduction in the corporate tax rate -- from 35% to as low as 20% -- will force some companies to take a big writedown due to the forced remeasurement they'll have to do of the deferred tax assets on their balance sheets.

For banks like Citigroup(C) , which has the largest deferred tax asset balance of all public companies as of the end of 2016, regulatory capital could also be affected. The bank has been warning investors in its filings with the Securities and Exchange Commission of the possibility of a significant negative impact on its bottom line from lower rates.

Read:Citigroup likely to take $20 billion hit from Republicans' tax plan (http://www.marketwatch.com/story/citigroup- likely-to-take-20-billion-hit-from-republicans-tax-plan-2017-12-07)

A MarketWatch story from last week reported on the significant profit hit, and potential capital infusion needed, for Fannie Mae (FNMA) and Freddie Mac (FMCC) because of their large deferred tax balances. The deferred tax assets, currently worth about $45 billion combined, would be reduced to about $20 billion, according to an analyst estimate based on a corporate rate cut to 20% from 35%.

Read:Here's what else tax reform means: another bailout of Fannie and Freddie (http://www.marketwatch.com/story/heres- what-else-tax-reform-means-another-bailout-of-fannie-and-freddie-2017-12-05)

Other companies will take big hits because of deferred tax assets accumulated over the years and little or no reserves in place to mitigate the impact.

Deferred tax asset and liabilities are created by the increases and decrease in taxes payable or refundable for future years as a result of net operating loss or tax credit carryforwards and "temporary differences" between tax and financial statement income. Many of the companies that are currently profitable, like the big banks, General Motors(GM), and American International Group(AIG), accumulated these tax credits and deductions as a result of multiyear big losses during the financial crisis that started in 2008.

The financial impact of the federal tax rate reduction will be lessened if a company has already taken a valuation allowance, and a profit hit, from adjusting its deferred tax assets. Companies make valuation allowances when the tax benefit from a portion of the deferred tax asset balance is "more likely than not" not going be realized. That happens most often when a company is experiencing chronic losses.

In conjunction with research firm Audit Analytics, MarketWatch analyzed data regarding companies' deferred tax asset and liability balances as of the end of 2016.

Here are the 15 companies with largest deferred tax asset balances as of the end of 2016, net of any deferred tax liabilities, and an estimate of the amount of write-down they will have to take. The analysis assumed no change in balances from the end of 2016, and a federal rate reduction from 35% to 20%.

In some cases the deferred tax assets and liabilities consist of state, local or foreign deductions and credits that would not be affected by a cut in the U.S. federal tax rate but could be affected by proposed changes such as a one-time levy on the repatriation of profits earned outside the United States.

-Francine McKenna; 415-439-6400; [e-mail]

Company All numbers in millions Ticker symbol Gross deferred tax assets Valuation allowance Estimated profit hit Citigroup(C) US:C $49,690 0 $22,654General Motors(GM) US:GM $39,964 ($4,644) $13,787 American Int'l Group US:AIG $30,177 ($2,831) $7,897Bank of America(BAC) US:BAC $29,488 ($1,117) $7,601Fed Home Loan Bank$15,818 0 $7,087Ford Motor(F) US:F $20,780 ($909) $3,352Lockheed Martin(LMT) US:LMT $7,746 ($15) $3,339IBM(IBM) US:IBM $11,906 ($916) $1,627Morgan Stanley(MS) US:MS $5,974 ($164) $2,054Kinder Morgan(KMI) US:KMI $4,740 ($184) $1,862 Capital One US:COF $6,050 ($179) $3,259 Hewlett Packard US:HPQ $11,044 ($2,650) $323Union Electric US:UELMO $5,151 0 $1,967Cisco Systems(CSCO) US:CSCO $5,831 ($244) $1,626Goldman Sachs(GS) US:GS $5,337 ($115) $1,511