How does Benihana compute its income taxes?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
dgments and uncertainties may result in materially different amounts being reported under
Our significant accounting estimates are discussed in additional detail in Note 2 to our consolidated financial statements. We base our estimates on historical experience and various assumptions that we believe to be reasonable under the circumstances and we evaluate those estimates on an ongoing basis. Actual results may differ from these
estimates under different assumptions or conditions. We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below: Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized.
In addition, our income tax returns are periodically audited by federal, state and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions taken and the allocation of income amongst various tax jurisdictions. We evaluate our exposures associated with our various tax filing positions and record a related liability. We adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax provision is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.
As of December 3
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company calculates income taxes using the asset and liability method. This approach involves recognizing deferred income taxes for the differences between the financial statement and income tax bases of assets and liabilities. These deferred taxes are determined using the enacted statutory tax rate expected for the years when these differences will either be taxable or deductible. Benihana adjusts deferred tax assets by a valuation allowance if it's deemed more likely than not that some or all of these assets will not be realized. This determination involves considering factors such as historical taxable income, projections of future taxable income, industry events, economic conditions, and historical trends.
Benihana also recognizes tax benefits from uncertain tax positions when it's determined that the position is more likely than not to be sustained upon examination by tax authorities. The recognized amount is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If an uncertain tax position is derecognized, Benihana's policy is to record any applicable interest and penalties within the provision for income taxes in the consolidated statements of operations and comprehensive income.
For a prospective franchisee, this means that Benihana's tax calculations involve numerous estimates and judgments, particularly regarding the interpretation of tax laws and the outcomes of tax audits. The company's approach is also influenced by factors like the Tax Cuts and Job Act of 2017, which impacts the treatment of earnings from its U.K. and Italy subsidiaries. Franchisees should be aware that these complex tax considerations can affect Benihana's overall financial performance, which in turn could have implications for the franchise system.