Question

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Cadillac Square Corporation determined that $1,127.800 of its research tax credit on its current-year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made the following assessment of the company's potential tax benefit from the deduction and its probability of occurring. Potential Individual Cumulative Estimated Benefit Probability of Probability of (ees) Occurring (%) Occurring (%) $1,127,820 43 $ 946,550 $ 259,550 100 43 20 93 What amount of the tax benefit related to the uncertain tax position from the research tax credit can Cadillac Square Corporation recognize in calculating its income tax provision in the current year? Tax benefit amount recognized

Answer 1

Solution Given that table Potential I Individual rummulatine stimated benefit probability of probalality of AX13 in 000 Occusing in % l'accuxinal on o'l B 43% 43°. $1,127,800 & qu6 1550 $259,550 30%. 20% 737 93%. 100%. $184.954 $ 283,965 151910 7. Accordingly an increase of : $1,124,800-$946,550 $ 181,250 is recorded as the increase in income tax expense where $181,250 is the difference between the full amount received On the tax retuan and the expected benefit to be . received after audit by IRs. The cummulative probability of more than 50% of Occurring is for the potential estimated benefit af $946,550 :: Tem bene fit amount recognized – $906,550