Recognition asks whether a tax position is more likely than not to be sustained on its technical merits under the required examination assumptions. Complete this gate before measuring the amount of benefit. A high expected dollar recovery or favorable settlement offer does not replace the recognition analysis.
Keep recognition before measurement
ASC 740-10-25-6 sets the more-likely-than-not technical-merits threshold. The conclusion assumes examination with relevant information under the related guidance.
A supplied legal memo may conclude that a research credit position passes recognition. Only then does the accounting schedule apply the cumulative-probability measurement rule to supported settlement outcomes. If recognition fails, the model does not select a smaller weighted benefit as a compromise. Record unit of account, relevant law, reporting date, examination assumptions, memo owner, and conclusion. The course applies a supplied conclusion; it does not provide tax or legal advice.
Reassess the conclusion when dated facts change; do not carry last year's memo forward merely because the return position remains open.
Put the concept to work
Analyze this concept
- Apply a supplied technical-merits recognition conclusion before measuring any benefit and preserve the examination assumption.
Learning resources
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