Uncertain Tax Position

  1. Describe FIN 48 (now ASC 740-10) and what is meant by “uncertain tax positions.”

The FIN 48 (now ASC 740-10) is an accounting requirement for all businesses in the United States to disclose and analyze their uncertain tax positions (UTP). This regulation applies to all businesses using the US GAAP (Generally Accepted Accounting Principles). Under this regulation, a business only recognizes an income tax benefit if it highly likely it will materialize (more than 50% likelihood). An uncertain tax position (UTP) refers to a tax position that is expected to be taken in a future tax return by the company or the tax position of a previously filed return. Examples of UTP include decisions to exclude some taxable income in a tax return or a decision to shift income between jurisdictions.

  1. What were the FASB objectives when issuing the FIN 48 interpretation?
  2. To recognize the amount of taxes payable or refundable in the current year.
  3. To recognize the deferred tax liabilities and assets for future taxation of events that are in an entity’s financial statements or tax returns.

Temple-Inland Inc.
Using the company’s financial statements, address the following questions:

  1. How much did the company request in this tax refund from the Internal Revenue Service in 2009?
  2. How much did the company receive in the tax refund? In other words, how much had each company received as of 2009 fiscal year end, how much was each company’s receivable related to the tax credit, and what was the total? How much of the refund did each company include in pre-tax book income?
  3. Did the company record an unrecognized tax benefit related to the tax refund? If the company did not discuss it, you may assume that the answer is no.
  4. If the company did record an unrecognized tax benefit, what percentage of the maximum potential benefit did they reserve?
  5. What were the net operating loss balances at each company?
  6. What were the valuation allowances on deferred tax assets at each company? Did the valuation allowances pertain to the net operating loss carryforwards?
  7. Did the company have any other large and noteworthy differences between book income and taxable income?
  8. Given the facts you just compiled, address the following questions for each company:
  9. If the company excluded the tax refund from taxable income, and did not record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  10. If the company excluded the tax refund from taxable income, and did record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  11. If the company included the tax refund in taxable income, what must the company believe about whether the IRS and tax courts would challenge and allow this excluding the tax refund? Explain using the language of FIN 48.
  12. What similarities and differences do you notice among the companies that accounted for the tax refund in the same way?
  13. What similarities and differences do you notice among the companies that accounted for the tax refund the differently?
  14. Given these similarities and differences, what factors – other than the appropriate use of FIN 48 – might have affected these companies’ decisions on how to account for the tax refund?

Weyerhaeuser Company
Using the company’s financial statements, address the following questions:

  1. How much did the company request in this tax refund from the Internal Revenue Service in 2009?
  2. How much did the company receive in the tax refund? In other words, how much had each company received as of 2009 fiscal year end, how much was each company’s receivable related to the tax credit, and what was the total? How much of the refund did each company include in pre-tax book income?
  3. Did the company record an unrecognized tax benefit related to the tax refund? If the company did not discuss it, you may assume that the answer is no.
  4. If the company did record an unrecognized tax benefit, what percentage of the maximum potential benefit did they reserve?
  5. What were the net operating loss balances at each company?
  6. What were the valuation allowances on deferred tax assets at each company? Did the valuation allowances pertain to the net operating loss carryforwards?
  7. Did the company have any other large and noteworthy differences between book income and taxable income?
  8. Given the facts you just compiled, address the following questions for each company:
  9. If the company excluded the tax refund from taxable income, and did not record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  10. If the company excluded the tax refund from taxable income, and did record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  11. If the company included the tax refund in taxable income, what must the company believe about whether the IRS and tax courts would challenge and allow this excluding the tax refund? Explain using the language of FIN 48.
  12. What similarities and differences do you notice among the companies that accounted for the tax refund in the same way?
  13. What similarities and differences do you notice among the companies that accounted for the tax refund the differently?
  14. Given these similarities and differences, what factors – other than the appropriate use of FIN 48 – might have affected these companies’ decisions on how to account for the tax refund?

Graphic Packaging Holding Company
Using the company’s financial statements, address the following questions:

  1. How much did the company request in this tax refund from the Internal Revenue Service in 2009? $1.5 Million (page 67)
  2. How much did the company receive in the tax refund? In other words, how much had the company received as of 2009 fiscal year end, how much was the company’s receivable related to the tax credit, and what was the total? How much of the refund did the company include in pre-tax book income?

The company had received $4.4million refund, which was related to tax credit (settlement in 2007). The total tax credit for the business was $12.7 million for 2009 and $13.5 million for 2008.  As of 31st December 2009, the company had included $1.5 million in its pre-tax book.

  1. Did the company record an unrecognized tax benefit related to the tax refund? If the company did not discuss it, you may assume that the answer is no. Yes
  2. If the company did record an unrecognized tax benefit, what percentage of the maximum potential benefit did they reserve?

Net Deferred income tax assets was $34.7 million at 31st December 2009 (Will most likely not be paid) (page 66).
Total unrecognized tax benefit as at 31st December, 2009 was $1.5 Million.
Percentage of maximum potential benefits is 4.323%.  (1.5/34.7*100%= 4.323%)

  1. What were the net operating loss balances at the company?

As at 31st December, 2009, the net operating loss were $537.5 Million. (pp. 66)

  1. What were the valuation allowances on deferred tax assets at the company? Did the valuation allowances pertain to the net operating loss carryforwards?

The valuation allowance were $16.4 Million for Current Deferred income tax and $239.1 million for noncurrent deferred income tax assets and liabilities, which appertained to the net operating loss carryforwards. (pp. 66)

  1. Did the company have any other large and noteworthy differences between book income and taxable income?

Yes. There were other significant differences in book income and taxable income.
Current deferred income tax assets
Compensation based accruals of $34.9 million.
Others $16.2 million
Valuation allowance $16.4million
Noncurrent Deferred Income Tax Assets
Net operating loss carryforwards $537.5 million
Postretirement benefits $90.3Million
Tax credits $12.7 million
Others $59.3 million
Valuation allowance $239.1 million
Property, plant, and equipment $269.6 million
Goodwill $188.3 million
Other intangibles $220.3 million

  1. Given the facts you just compiled, address the following questions for each company:
  2. If the company excluded the tax refund from taxable income, and did not record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  3. If the company excluded the tax refund from taxable income, and did record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  4. If the company included the tax refund in taxable income, what must the company believe about whether the IRS and tax courts would challenge and allow this excluding the tax refund? Explain using the language of FIN 48.
  5. What similarities and differences do you notice among the companies that accounted for the tax refund in the same way?
  6. What similarities and differences do you notice among the companies that accounted for the tax refund the differently?
  7. Given these similarities and differences, what factors – other than the appropriate use of FIN 48 – might have affected these companies’ decisions on how to account for the tax refund?

Boise Inc.
Using the company’s financial statements, address the following questions:

  1. How much did the company request in this tax refund from the Internal Revenue Service in 2009?
  2. How much did the company receive in the tax refund? In other words, how much had each company received as of 2009 fiscal year end, how much was each company’s receivable related to the tax credit, and what was the total? How much of the refund did each company include in pre-tax book income?
  3. Did the company record an unrecognized tax benefit related to the tax refund? If the company did not discuss it, you may assume that the answer is no.
  4. If the company did record an unrecognized tax benefit, what percentage of the maximum potential benefit did they reserve?
  5. What were the net operating loss balances at each company?
  6. What were the valuation allowances on deferred tax assets at each company? Did the valuation allowances pertain to the net operating loss carryforwards?
  7. Did the company have any other large and noteworthy differences between book income and taxable income?
  8. Given the facts you just compiled, address the following questions for each company:
  9. If the company excluded the tax refund from taxable income, and did not record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  10. If the company excluded the tax refund from taxable income, and did record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  11. If the company included the tax refund in taxable income, what must the company believe about whether the IRS and tax courts would challenge and allow this excluding the tax refund? Explain using the language of FIN 48.
  12. What similarities and differences do you notice among the companies that accounted for the tax refund in the same way?
  13. What similarities and differences do you notice among the companies that accounted for the tax refund the differently?
  14. Given these similarities and differences, what factors – other than the appropriate use of FIN 48 – might have affected these companies’ decisions on how to account for the tax refund?

Rock-Tenn Company
Using the company’s financial statements, address the following questions:

  1. How much did the company request in this tax refund from the Internal Revenue Service in 2009?
  2. How much did the company receive in the tax refund? In other words, how much had each company received as of 2009 fiscal year end, how much was each company’s receivable related to the tax credit, and what was the total? How much of the refund did each company include in pre-tax book income?
  3. Did the company record an unrecognized tax benefit related to the tax refund? If the company did not discuss it, you may assume that the answer is no.
  4. If the company did record an unrecognized tax benefit, what percentage of the maximum potential benefit did they reserve?
  5. What were the net operating loss balances at each company?
  6. What were the valuation allowances on deferred tax assets at each company? Did the valuation allowances pertain to the net operating loss carryforwards?
  7. Did the company have any other large and noteworthy differences between book income and taxable income?
  8. Given the facts you just compiled, address the following questions for each company:
  9. If the company excluded the tax refund from taxable income, and did not record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  10. If the company excluded the tax refund from taxable income, and did record an unrecognized tax benefit, what must the company believe about whether the IRS and tax courts will challenge and allow this exclusion? Explain using the language of FIN 48.
  11. If the company included the tax refund in taxable income, what must the company believe about whether the IRS and tax courts would challenge and allow this excluding the tax refund? Explain using the language of FIN 48.
  12. What similarities and differences do you notice among the companies that accounted for the tax refund in the same way?
  13. What similarities and differences do you notice among the companies that accounted for the tax refund the differently?
  14. Given these similarities and differences, what factors – other than the appropriate use of FIN 48 – might have affected these companies’ decisions on how to account for the tax refund?