UTPs Flashcards
What is the two stop proccess that seperates recognition analysis from measurement of benefit in UTPS
- Recognition: Does the tax position meet the more likely than not rule
- Measurement: If the recognition is met, measure the benefit
When is a tax benefit recognized
When it is more likely than not to be sustained based on the technical merits of the positions
“More likely than not” represents a likelihood greater than 50%
It assumes the tax position will be examined by authorities and each position needs to stand on its own merits
When may subsequent recognition of a UTP occur
A tax position that fails to qualify for initial recognition may be recognized in the first interim period:
1. Meets the more likely than not criteria
2. Statutue of limitations expires
3. OR is settled with the IRS
What is a closing agreement
A rare but legally binding agreement with the IRS that states they will close the tax year in a settlemenet. Aka not revisit the year even if the statute of limitations is still open
What is the cumulative probability concept
A tax position that meets the first step for recognition shall be recognized as the largest amount of tax benefit with a more than 50% cumulative probability of being realized
Table on probability of deduction occuring
How should UTPs be represented in the financial statements
- As either a current or noncurrent liability
- OR reduction of DTA for temporary differences resulting from indirect effects of that tax position
Amount paid next year should be classified as a current liability
What impact do UTPs have on the effective tax rate
Included in the effective rate calculation as a permanent difference. Assumed the positions would not be upheld
What is a tax position
Tax position is how the company is applying the tax law to its return. How the company plans to report a given transaction in a report that it filed in the past or will file in the future
