23 May HOW MUCH OF THE REFUND DID EACH COMPANY INCLUDE IN PRE-TAX BOOK INCOME?
Using these financial statements, address the following questions for each company:
How much did each company request in this tax refund from the Internal Revenue Service in 2009?
How much did each 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?
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.
If the company did record an unrecognized tax benefit, what percentage of the maximum potential benefit did they reserve?
What were the net operating loss balances at each company?
What were the valuation allowances on deferred tax assets at each company? Did the valuation allowances pertain to the net operating loss carryforwards?
Did the company have any other large and noteworthy differences between book income and taxable income?
Given the facts you just compiled, address the following questions for each company:
If a 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.
If a 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.
If a 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.
What similarities and differences do you notice among the companies that accounted for the tax refund in the same way?
What similarities and differences do you notice among the companies that accounted for the tax refund the differently?
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?
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