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Uncertain Tax Position MeasurementCumulative Probability (ASC 740-10)

What does this come to under the current IRS rules?

Largest benefit greater than 50 percent likely of being realized from up to five outcomes, and the unrecognized tax benefit.

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Your figures
Example figuresIllustrative only. Type over them with your own.
Benefit recognized
$60,000
Largest amount over 50% likely on settlement
Unrecognized tax benefit
$40,000
Probabilities add to
100.00%
Drawn to one scale
Benefit recognized$60,000
Unrecognized tax benefit$40,000
All results
MeasureResult
Benefit recognized$60,000
Unrecognized tax benefit$40,000
Probabilities add to100.00%
Recognition stepPassed: measure the benefit
How this was worked out
Work shownrecomputed as you type
Sort outcomes from largest benefit to smallest
Add probabilities down the list
Benefit = the first amount at which the cumulative probability exceeds 50%
Unrecognized tax benefit = claimed - recognized

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • Sort outcomes from largest benefit to smallest
  • Add probabilities down the list
  • Benefit = the first amount at which the cumulative probability exceeds 50%
  • Unrecognized tax benefit = claimed - recognized

How it works

ASC 740-10-25-6 recognizes a tax position only if it is more likely than not to be sustained on examination on its technical merits. ASC 740-10-30-7 then measures it at the largest amount of benefit that is greater than 50 percent likely of being realized on settlement with a taxing authority that has full knowledge of all relevant information.

In the example the outcomes run from $100,000 down to $40,000. Cumulative probability reaches 30 percent at $80,000 and 55 percent at $60,000, so $60,000 is recognized and $40,000 is an unrecognized tax benefit.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

What if the position fails recognition?

No benefit is recognized and the full amount claimed is an unrecognized tax benefit.

Are interest and penalties included?

They are computed on the unrecognized benefit and classified by policy as income tax expense or as interest and other expense.

Do private companies apply this?

Yes. ASC 740-10 recognition and measurement applies to all entities, including pass-through entities for their own tax positions.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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