Question

Collins Company incurs a $1,000 book expense that it deducts on its tax return. The tax law is unclear whether this expense is deductible, so the deduction leads to an uncertain tax position. Assuming a 35% tax rate, the deduction results in a $350 tax benefit. Required: For each of the following independent cases, determine how much of the tax benefit associated with the uncertain tax position Collins can recognize and how much of a tax contingency reserve for uncertain tax benefits Collins needs to record. Case 1 Case 3 80% L Management's assessment of the likelihood of the uncertain tax position being sustained based on technical merits Likelihood of realizing $350 Likelihood of realizing $250 Likelihood of realizing $100 Likelihood of realizing $0 Tax benefit that may be recognized: Largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement Tax contingency reserve for uncertain tax benefits 65% 10% - 30% 20 % Case 2 - 40% 5 % 5% 45 % 45% 400

Answer 1

(นาโร Collins company incurs & 1000 boods emense that it deducts on its tan detwin : The tar law is unclear whether this expenses es deductible; Solhe deduction leads to an uncertain tex position & Assurning a 35% tax rate The deductiby results in a $350 tare benefit Determining tot benefit for en contain tar p051dาฯ : : . Case / Casez casez Management's assessment of the likelyhood of thize uncertain tare position being sustained 65% uo%80% based on technical merits... Likelihood of realizing $350 Likelihood of realizing & aso. likelihood of realizing & 100 Likelihood of realizing 60 Largest amount of benefit that is greater then sot likely of being realized upon | $wo - ultimate settlement so tax contingency reserve for unceslain tax benefits | $950 $350 $0.