ASC 740 prescribes a comprehensive two-step model for recognizing, measuring, and disclosing uncertain tax positions. A tax benefit from an uncertain position may be recognized in the financial statements only if it is more-likely-than-not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents (see TX 15.3). If the recognition threshold for the tax position is met, only the portion of the tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority should be recorded (see TX 15.4).
This chapter details the two-step model and addresses the accounting for changes in judgment (see TX 15.5) and for interest and penalties (see TX 15.6). The qualitative and quantitative disclosure requirements related to uncertain tax positions are discussed in FSP 16.8.3 and FSP 16.8A.3.
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