What is an example of an uncertain tax position?
The following examples illustrate types of uncertain tax positions: Whether or not to include income in an entity's taxable income. Uncertainty as to the deductibility of an amount for tax purposes. Uncertainty whether the tax authority and the courts will accept a certain transfer pricing methodology.
Uncertain positions do not just relate to positions that have an ultimate effect on income tax expense. They may include issues that impact other line items, such as the allocation of purchase price to assets and liabilities acquired in business combinations and issues related to share-based payments.
For example, an entity's decision not to submit any income tax filing in a tax jurisdiction, or not to include particular income in taxable profit, is an uncertain tax treatment if its acceptability is uncertain under tax law.
Examples of tax positions are the decision to not file a tax return, to shift income between tax jurisdictions, and to classify a transaction as tax-exempt.
The term more-likely-than-not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.
Uncertain tax positions are recognized and measured using a two-step process: (1) determine whether a benefit may be recognized and (2) measure the amount of the benefit.
ASC 740 defines an uncertain tax position as the "recognition of tax balances on financial statements that are not recorded on corporate tax returns, if those returns include uncertain tax positions." Some examples of "tax positions" include determining whether a meal expense is 50 percent or 100 percent deductible or ...
A tax position is an interpretation of facts that led the taxpayer, and/or their advisor, to believe that revenue is not taxable or a deduction is allowable.
Uncertain Tax Position Reporting
Corporations filing Forms 1120, 1120-F, 1120-L, or 1120-PC must file Schedule UTP if total assets equal or exceed $10 million for the tax year and the corporation recorded a liability for unrecognized tax benefits for a tax position in audited financial statements.
Each time you purchase a security, the new position is a distinct and separate tax lot — even if you already owned shares of the same security. (A tax lot is a record of a transaction and its tax implications, including the purchase date and number of shares.)
What is the constructive receipt doctrine?
Constructive receipt of income occurs when a party obtains income that is not yet physically received but has been credited to the taxpayer's account and over which they have immediate control. The taxpayer is liable to pay taxes on all income constructively received.
Under section 7701(o)(1), a transaction has economic substance if: (1) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer's economic position; and (2) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.
48, “Accounting for Uncertainty in Income Taxes” (FIN 48) requires companies to recognize, measure, present and disclose uncertain tax positions they take, or expect to take, in their tax returns.
For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.
Taxpayers have a reasonable basis when the taxpayer's position is supported by at least one authority. Reasonable basis is a relatively high standard of tax reporting, that is significantly higher than not frivolous or not patently improper.
In this lesson we looked at the criteria that must be examined for a tax system. Three general ideas must be kept in mind, namely efficiency, equity, and simplicity. Tax brackets offer a way to share equity, but can be viewed as less simple and less efficient.
The answers matter because various combinations of tax bases and rates can raise the same amount of revenue. Three long-standing criteria—equity; economic efficiency; and a combination of simplicity, transparency, and administrability—are typically used to evaluate tax policy.
Current and deferred taxes are measured based on tax rates that are enacted or substantively enacted at the reporting date. An exception to recognition of deferred taxes exists related to intra-entity transfers of inventory that result in a step-up in tax basis.
ASC 740 requires the balance sheet to net all deferred tax assets and liabilities that can be offset for income tax purposes – usually meaning they relate to the same jurisdiction for the same entity. However, companies must disclose the total value of both deferred tax assets and liabilities.
For financial reporting purposes, ASC 740 requires disclosure of the effect of adjustments to deferred tax amounts for enacted changes in tax laws or rates as well as, for interim periods, the effect of the change in the estimated annual effective tax rate.
What are the two steps used for reporting uncertain tax positions?
Recognition and Measurement
The measurement step: If so, what is the largest tax benefit that the taxpayer more likely than not will realize as a result of that review? Both the recognition step and the measurement step must be applied to each uncertain tax position.
Accounting for income taxes (ASC 740) is a set of income tax standards requiring public companies and private companies preparing to go public to analyze and disclose income tax risks.
ASC 740-10 notes the following: This Subtopic provides guidance for recognizing and measuring tax positions taken or expected to be taken in a tax return that directly or indirectly affect amounts reported in financial statements.
The highest-earning Americans pay the most in combined federal, state and local taxes, the Tax Foundation noted. As a group, the top quintile — those earning $130,001 or more annually — paid $3.23 trillion in taxes, compared with $142 billion for the bottom quintile, or those earning less than $25,000.
Income tax—A percentage of generated income that is relinquished to the state or federal government. Payroll tax—A percentage withheld from an employee's pay by an employer, who pays it to the government on the employee's behalf to fund Medicare and Social Security programs.