After utilizing any carrybacks, Nu Inc. had a taxable loss carryforward of $1 million in 20X9. The company is trying to determine if the “probable” condition has been met and if it should record a deferred income tax asset or not. For the past five years, Nu has had declining profits. The company has recently acquired one of its competitors, which had research in progress for a new product. Work has been completed on the project, and a patent was filed by the end of 20X9. Marketing studies show that this product, if successful, will have huge sales potential for a number of years.
The company has initiated an advertising campaign to promote the product, which is expected to be launched 14 February 20X10. Unfortunately, in January 20X10 a lawsuit was launched, indicating patent infringement. Lawyers for Nu do not think there is merit in the lawsuit. The company plans to go ahead with the launch of the product. The tax rate for the company is 38%.

Required:
1. Is use of the tax loss carryforward probable? Provide support for both sides.
2. What is the amount that would be recorded as a deferred income tax asset if probable?
3. What is the impact of the tax losses if it is determined the probable condition has not been met? Could a deferred income tax asset be recorded in the future?