We build on Phillips et al. (2003) by assuming that the ability of deferred taxes to detect earnings management follows from management’s opportunistic use of discretion available under GAAP but not under tax rules to measure accruals.  We extend the analysis in PPR by studying the conditions under which deferred taxes detect earnings management, and by differentiating between earnings management strategies firms adopt to achieve certain earnings targets.  We establish two results.  First, we find evidence consistent with negative book-tax observations driving the results reported in Phillips et al. (2003), consistent with the accruals leading to negative book-tax differences being subject to greater management discretion than accruals leading to positive book-tax differences.  Second, we find that joint consideration of the level and change of deferred taxes detects different kinds of earnings management depending on whether managers avoid reporting losses or report earnings growth.  In the loss avoidance case, we observe a narrowing of book-tax differences consistent with managers adopting a relatively aggressive reporting strategy, while in the earnings growth case we document a widening of book-tax differences suggesting managers follow a conservative reporting strategy of creating hidden reserves.  Our findings provide further evidence that consideration of the properties of deferred tax expense can reveal situations where management measures book income opportunistically through GAAP discretion relative to tax rules.