While the only things certain in life may be death and taxes, how much taxes is certainly uncertain. In order for the tax benefits of an uncertain tax position to be recognized for financial reporting purposes, it must be more likely than not that the position will ultimately be upheld based solely on its technical merits. However, making such a judgment can be filled with, well, uncertainty. The basis for such a judgment may include judicial as well as legislative and administrative authority including court cases addressing positions similar to that taken by the taxpayer. But when a court has already ruled against the taxpayer, can it still be more likely than not that the taxpayer's position will be upheld? Several companies, including Whirlpool and Newell Brands, Inc. (the makers of Krazy Glue), after losing a case in Tax Court, have recently continued to recognize tax benefits related to the overturned positions. Another of those companies is Coca-Cola. In 2020, Coca-Cola lost a case concerning its transfer pricing practices for the years 2007 to 2009. After the Tax Court ordered Coca-Cola to pay $3.3 billion in tax, the company announced that it could potentially be liable for up to $12 billion in additional taxes as a result of its use of the same practices since the years in question. This would exceed the annual pretax profits reported by the company for the last several years. However, Coca-Cola announced its intention to continue defending its position and recognized only an additional $438 million in tax expense as a result of the Tax Court's ruling. Is Coca-Cola's decision to recognize the tax benefits of their position, even after the Tax Court's ruling, problematic? How relevant and reliable is the reporting of uncertain tax positions under ASC 740-10 given its reliance on judgments about the probability of future judgments? What alternatives might there be for dealing with tax uncertainty?
While the only things certain in life may be death and taxes, how much taxes is certainly uncertain. In order for the tax benefits of an uncertain tax position to be recognized for financial reporting purposes, it must be more likely than not that the position will ultimately be upheld based solely on its technical merits. However, making such a judgment can be filled with, well, uncertainty. The basis for such a judgment may include judicial as well as legislative and administrative authority including court cases addressing positions similar to that taken by the taxpayer. But when a court has already ruled against the taxpayer, can it still be more likely than not that the taxpayer's position will be upheld? Several companies, including Whirlpool and Newell Brands, Inc. (the makers of Krazy Glue), after losing a case in Tax Court, have recently continued to recognize tax benefits related to the overturned positions. Another of those companies is Coca-Cola. In 2020, Coca-Cola lost a case concerning its transfer pricing practices for the years 2007 to 2009. After the Tax Court ordered Coca-Cola to pay $3.3 billion in tax, the company announced that it could potentially be liable for up to $12 billion in additional taxes as a result of its use of the same practices since the years in question. This would exceed the annual pretax profits reported by the company for the last several years. However, Coca-Cola announced its intention to continue defending its position and recognized only an additional $438 million in tax expense as a result of the Tax Court's ruling. Is Coca-Cola's decision to recognize the tax benefits of their position, even after the Tax Court's ruling, problematic? How relevant and reliable is the reporting of uncertain tax positions under ASC 740-10 given its reliance on judgments about the probability of future judgments? What alternatives might there be for dealing with tax uncertainty?
Chapter12: Tax Administration And Tax Planning
Section: Chapter Questions
Problem 12MCQ
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Transcribed Image Text:While the only things certain in life may be death and taxes, how much taxes is certainly uncertain. In order for
the tax benefits of an uncertain tax position to be recognized for financial reporting purposes, it must be more
likely than not that the position will ultimately be upheld based solely on its technical merits. However, making
such a judgment can be filled with, well, uncertainty. The basis for such a judgment may include judicial as well
as legislative and administrative authority including court cases addressing positions similar to that taken by the
taxpayer. But when a court has already ruled against the taxpayer, can it still be more likely than not that the
taxpayer's position will be upheld? Several companies, including Whirlpool and Newell Brands, Inc. (the makers
of Krazy Glue), after losing a case in Tax Court, have recently continued to recognize tax benefits related to the
overturned positions.
Another of those companies is Coca-Cola. In 2020, Coca-Cola lost a case concerning its transfer pricing practices
for the years 2007 to 2009. After the Tax Court ordered Coca-Cola to pay $3.3 billion in tax, the company
announced that it could potentially be liable for up to $12 billion in additional taxes as a result of its use of the
same practices since the years in question. This would exceed the annual pretax profits reported by the company
for the last several years. However, Coca-Cola announced its intention to continue defending its position and
recognized only an additional $438 million in tax expense as a result of the Tax Court's ruling.
Is Coca-Cola's decision to recognize the tax benefits of their position, even after the Tax Court's ruling,
problematic? How relevant and reliable is the reporting of uncertain tax positions under ASC 740-10 given its
reliance on judgments about the probability of future judgments? What alternatives might there be for dealing
with tax uncertainty?
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