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Glossary/Tax and regulatory

Uncertain tax position

An uncertain tax position is a tax return position that must meet a more-likely-than-not threshold on technical merits before benefit is recognized, measured at the largest amount over 50% likely to be realized.

CORAA TeamUpdated November 5, 2026

Definition

ASC 740-10 (formerly FIN 48) requires a two-step process. Recognition: a tax benefit is recognized only if the position is more likely than not to be sustained on examination, based on technical merits, assuming the taxing authority has full knowledge. Measurement: the benefit is the largest amount with a greater than 50% likelihood of being realized on settlement. The difference is a liability for unrecognized tax benefits. Interest is accrued when the tax law would require it on the unrecognized amount, and the income statement classification of interest and penalties is an accounting policy election that is disclosed. Nonpublic entities follow the same recognition and measurement rules.

Why it matters in an audit or review

Auditors inquire about aggressive positions: state nexus, worker classification, research credits, and related-party transactions. They review tax counsel advice and consider whether pass-through entities have uncertain positions that affect owners. The annual tabular reconciliation of unrecognized tax benefits is required for public entities only.

Example

(Illustrative) A company claims a deduction worth $25,000 of tax. Management estimates outcomes on settlement: full $25,000 benefit, 30%; $15,000, 40%; nothing, 30%. Cumulative likelihood of at least $25,000 is 30% and of at least $15,000 is 70%, so the measured benefit is $15,000 and the liability for unrecognized benefits is $10,000.

Common mistakes

  • Considering the likelihood of audit rather than technical merits.
  • Ignoring state exposure.

Sources

  • FASB ASC 740-10-25-6 (recognition) and 740-10-30-7 (measurement)
  • FASB ASC 740-10-25-56 (interest and penalties)
  • FASB ASC 740-10-50-15A (tabular reconciliation, public entities)

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

Standards

ASC 740

Related terms

  • Valuation allowance
    A valuation allowance reduces a deferred tax asset to the amount more likely than not to be realized, based on positive and negative evidence about future taxable income.
  • Deferred tax assets and liabilities
    Deferred tax assets and liabilities capture the future tax effects of temporary differences between book and tax bases, measured at enacted tax rates under ASC 740 and classified as noncurrent.
  • Effective tax rate reconciliation
    An effective tax rate reconciliation explains the difference between expected tax at the statutory rate and reported income tax expense, and is a key analytical check on the tax provision.

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