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The assessment of an uncertain tax position is a continuous process, which does not end with the initial determination of a position’s sustainability. As of each balance sheet date, unresolved uncertain positions must be reassessed for both recognition and measurement. Management must determine whether the factors underlying the sustainability assertion have changed and whether the amount of the recognized tax benefit is still appropriate.
With regard to reassessing recognition, ASC 740-10-25-8 provides guidance on the timing and types of changes that could cause an entity to recognize a tax benefit due to a change in the sustainability of the tax position.

ASC 740-10-25-8

If the more-likely-than-not recognition threshold is not met in the period for which a tax position is taken or expected to be taken, an entity shall recognize the benefit of the tax position in the first interim period that meets any one of the following conditions:
a. The more-likely-than-not recognition threshold is met by the reporting date.
b. The tax position is effectively settled through examination, negotiation, or litigation.
c. The statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.
Accordingly, a change in facts subsequent to the reporting date but prior to the issuance of the financial statements shall be recognized in the period in which the change in facts occurs.

In addition, an uncertain tax position does not need to be legally extinguished and its resolution does not need to be certain to be recognized, derecognized or measured. Changes in the expected outcome of an uncertain tax position must be based on new information, and not on a mere re-evaluation of existing information. New information can relate to developments in case law, changes in tax law, new regulations issued by taxing authorities, interactions with the taxing authorities, or some other development. Such developments could potentially change the estimate of the amount that is expected to be sustained or to cause a position to cross over the recognition threshold (i.e., either the position’s sustainability becomes more-likely-than-not or the position ceases to meet the recognition threshold).
New information would exist if management’s previous evaluation was fully informed and based on all relevant facts and if, in the intervening period, legislative developments or developments in case law gave rise to the different interpretation by outside counsel. New information requires a new judgment on whether the recognition threshold has been met.
Example TX 15-5 illustrates consideration of whether a proposed settlement with the taxing authority provides new information.
EXAMPLE TX 15-5
Consideration of a tentative “global” settlement with a taxing authority in measuring uncertain tax positions
Company A has multiple uncertain tax positions, all of which have been assessed under ASC 740. Some tax positions met the recognition threshold of ASC 740, while other positions did not. The individual tax positions are not similar and are not interdependent. Positions that did not meet the recognition threshold were fully reserved (i.e., no benefit has been recognized). The taxing authority is conducting an audit of three years in which the positions were taken.
Company A has been in negotiations with the taxing authority and, as of the end of the current reporting period, the parties have reached a tentative “global” settlement agreement. The agreement would settle all positions within the three tax years under examination, and close out the audit for those years. While the Company believes they have reached an agreement with the taxing authority’s examination team, the agreement is subject to another level of governmental review before it becomes final and binding.
Company A determined that the additional level of review is substantive, and could result in the agreement being changed or withdrawn (by either party). As a result, Company A determined that the uncertain tax positions that have not met the recognition threshold are not considered “effectively settled” as described in ASC 740-10-25-10. In addition, no new information came to light during the examination process that would cause Company A to change its assessment of the technical merits of any of the individual uncertain tax positions. Therefore, no adjustment will be made to the tax positions that have not met the recognition threshold.
For positions that have met the recognition threshold, should Company A adjust its measurement of the related benefit of those positions based upon the tentative global settlement agreement?
Analysis
It depends. Company A must determine whether the proposed global settlement changes their assessment of the expected outcome for each tax position that has met the recognition threshold. In making this determination, Company A should consider its expected course of action, and related expected outcome, if the global settlement proposal is withdrawn or changed in the review process.
While ASC 740-10-35-2 requires companies to continually remeasure tax positions “based on management’s best judgment given the facts, circumstances, and information available at the reporting date,” subsequent changes must be based on “new information.”
In this case, Company A must determine if the global settlement proposal is part of the on-going examination and negotiation procedures and whether it constitutes “new information” that would change the assessment of the outcome of any individual tax position. In this example, negotiations were conducted on a global basis (i.e., considering all positions in the aggregate). Consequently, Company A would likely conclude that there was no new information with respect to any of the individual tax positions that caused management to change their previous assessment. As a result, no adjustment would be made to the measurement of the related benefit.
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