Brick and Mortar Inc

In: Business and Management

Submitted By aguo1993
Words 1595
Pages 7
Identify the facts

Bricks & Mortar is a manufacturer of construction equipment. They have been in business for over 50 years and profitable for the past 25 years. They have an applicable tax rate of 40% and no unused tax loss or credit carryforwards and their fiscal year end is December 31st.

Company has no uncertain tax positions that require recognition under ASC 740. Last payment was made March 17, 2010 for fiscal year end 2009, for purposes of accruing interest and penalties under this law.

In preparing the December 31, 2009 tax return there are two deductions which the tax law is not clear on whether those tax positions should reduce the Company’s 2009 tax liability. Issues 1 and 2, assume that each of the tax positions has substantial authority for the purpose of determining whether penalties may be assessed.

Issue 1:

Bricks & Mortar implemented a certain tax strategy that allows the company to include $100 deduction in its draft tax return, resulting in $40 reduction to taxes payable.

40% chance that the tax position would be sustained if taken to the court of last resort.

On the basis of its past experience with negotiating settlements with the taxing authority, management believes that if it were to negotiate a settlement with the taxing authority it would have the following outcome:

Possible Estimated Outcome | Individual Probability of Occurring | Cumulative probability of occurring | $40 | 10% | 10% | $20 | 40% | 50% | $10 | 30% | 80% | $0 | 20% | 100% |

Issue 1, One Year Later:

One year later, all facts remain the same except passage of time.

Solution to Issue 1:
According to ASU paragraph 740-10-55-3 under recognition of measurement a two step process. It is explained that there are two steps to determining if a tax position should be recognized and how to measure the tax position. The first…...

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