What is Uncertain tax positions?
In short
For an uncertain tax position, a company recognizes the tax benefit only if it is more likely than not (over 50%) to be sustained on examination on its technical merits, and measures it at the largest amount that is more than 50% likely to be realized on settlement.
Key takeaways
- The difference between the benefit claimed on the return and the benefit recognized is a liability for unrecognized tax benefits.
- It assumes the tax authority will examine the position with full knowledge of the facts.
- Companies choose an accounting policy for classifying related interest and penalties.
Where it's tested
FAR: Income Taxes (Deferred Tax Accounting) — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company has a $300,000 deferred tax asset related to a net operating loss carryforward. Based on a recent history of losses, management concludes it is more likely than not that only $100,000 of this asset will be realized. What should the company record?