Worked-example setupScope and assumptions
- Linden Peak, the tax-law treatment, recognition conclusion, settlement probabilities, interest and penalty policy, statutory rate, payments, and jurisdictions are fictional and supplied.
- A $20,000 tax-exempt item is the only current book-tax adjustment; there are no ending temporary differences or carryforwards in this bounded example.
- The $60,000 return benefit passes supplied recognition; settlement outcomes are measured under the cumulative-probability model.
- All cash-tax amounts are net of refunds and the entity is within the current annual disclosure scope.
- The example does not interpret tax law, validate legal merits, estimate probabilities, classify real litigation, or prepare a return.
- Period
- Year ended December 31, 20X6
- Units
- US dollars and annual reporting periods
- Rounding
- Retain full precision; display dollars with commas and parentheses and rates to at least two decimal percentage points
Recognition before measurement
The supplied technical memo concludes that the development-credit position passes the more-likely-than-not recognition threshold under the required examination assumption. That conclusion is an input, not a calculator output.
Order the supplied settlement outcomes:
| Benefit sustained | Probability | Cumulative probability |
|---|---|---|
| $60,000 | 15% | 15% |
| $45,000 | 40% | 55% |
| $25,000 | 30% | 85% |
| $0 | 15% | 100% |
The recognized benefit is $45,000. The ending unrecognized benefit is $15,000. Compared with the $10,000 opening balance, uncertainty adds $5,000 of current tax expense. A supplied $1,000 of interest and penalties is also classified in income tax expense.
Provision and rate tie
Pretax book income of $500,000 less $20,000 tax-exempt interest produces $480,000 taxable income and $100,800 return tax at 21 percent. Adding the $5,000 uncertainty increase and $1,000 interest produces $106,800 total tax expense. There are no deferred balances in this bounded example.
Statutory-rate tax is $105,000. The $4,200 permanent benefit, $5,000 uncertainty expense, and $1,000 interest expense net to a $1,800 increase and tie to $106,800. The effective rate is 21.36 percent.
Cash-tax disclosure
Cash taxes paid net of refunds are $90,000, separate from expense. The current five-percent jurisdiction threshold is $4,500. Federal $70,000, state $10,000, and foreign $10,000 amounts each cross it under the supplied population.
The table verifies arithmetic and routing. It does not validate technical merits, settlement probabilities, policy classification, jurisdiction scope, or a real entity's required wording.
Quantitative companions
Choose from 2 ways to work with this calculation.
Verified calculation · income tax accounting analysis
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- cash taxes paid
- 90,000
- current enacted rate
- 0.21
- current tax adjustments
- 1 field
Inspect data
{
"tax_exempt_interest": -20000
}- current tax credits
- 0
- enacted rates by period
- 1 field
Inspect data
{
"year_two": 0.21
}- ending valuation allowance
- 0
- opening current tax payable
- 20,000
- opening gross deferred tax asset
- 0
- opening gross deferred tax liability
- 0
- opening valuation allowance
- 0
- pretax book income
- 500,000
- rate reconciliation items
- 3 fields
Inspect data
{
"interest_and_penalties": 1000,
"tax_exempt_interest": -4200,
"uncertain_tax_position_change": 5000
}- statutory tax rate
- 0.21
- taxes paid by jurisdiction
- 3 fields
Inspect data
{
"federal": 70000,
"foreign": 10000,
"state": 10000
}- uncertain tax positions
- 1 field
Inspect data
{
"development_credit": {
"interest_and_penalties": 1000,
"interest_penalty_policy": "income_tax",
"opening_unrecognized_tax_benefit": 10000,
"recognition_threshold_met": true,
"return_benefit": 60000,
"settlement_outcomes": [
{
"benefit_amount": 60000,
"probability": 0.15
},
{
"benefit_amount": 45000,
"probability": 0.4
},
{
"benefit_amount": 25000,
"probability": 0.3
},
{
"benefit_amount": 0,
"probability": 0.15
}
]
}
}Recomputed result
| Measure | Value |
|---|---|
| development credit ending unrecognized tax benefit | 15,000 |
| development credit recognized tax benefit | 45,000 |
| effective tax rate | 0.2136 |
| ending current tax payable | 30,800 |
| recognized current tax expense | 106,800 |
| return current tax | 100,800 |
| taxable income | 480,000 |
| taxes paid disclosure threshold | 4,500 |
| total tax expense | 106,800 |
| uncertain tax expense | 5,000 |