An unrecognized tax benefit is the portion of a return benefit excluded from the financial statements under the uncertain-position model. It is not automatically a deferred tax liability or current taxes payable. Reconcile it by position and by the events that change recognition or measurement.
Keep the benefit bridge visible
ASC 740-10-25-16 explains that recognized financial-statement benefit can differ from the benefit taken or expected on the current return, producing unrecognized tax benefits.
If a return claims $60,000 and Topic 740 measurement supports $45,000, the ending unrecognized benefit is $15,000. An opening balance of $10,000 therefore increases by $5,000 before interest, penalties, settlements, or statutes. ASC 740-10-50-15A requires specified public-entity rollforward disclosure. Preserve additions, reductions, settlements, expirations, presentation, and policy. The schedule applies supplied legal conclusions and probabilities; it does not make them.
At close, reconcile the benefit rollforward to the provision entry and the applicable note without netting unrelated positions.
Put the concept to work
Analyze this concept
- Reconcile the unrecognized-tax-benefit balance separately from deferred tax liabilities, current payable, interest, penalties, settlements, and expirations.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Lessons
Worked examples and cases
Practice
Common mistaken ideas
Sources
Standard references
Broader topics
Related concepts
- Cumulative-probability tax-benefit measurement
- Income tax provision rollforward
- Income tax rate reconciliation