What criteria does Carbones Pizzeria use to evaluate the likelihood that its uncertain tax positions will prevail?

According to the 2025 FDD, Carbones Pizzeria evaluates the likelihood that its uncertain tax positions will prevail upon examination. This evaluation is based on the extent to which these positions have substantial support within the Internal Revenue Code (IRC) and Regulations, Revenue Rulings, court decisions, and other evidence. This means that Carbones Pizzeria assesses whether its tax positions are justifiable based on existing tax laws, regulatory guidance, and legal precedents.

For a prospective franchisee, this policy indicates that Carbones Pizzeria takes a cautious approach to tax matters, ensuring that its tax positions are well-supported by legal and regulatory standards. This approach can reduce the risk of facing penalties or additional tax liabilities in the event of an audit. It also reflects a commitment to compliance and transparency in its financial reporting.

It's important to note that the federal and state income tax returns of Carbones Pizzeria are subject to examination by income taxing authorities, generally for three years after they were filed. Any interest and penalties assessed by these authorities will be recorded in operating expenses. Therefore, while Carbones Pizzeria aims to maintain sound tax positions, franchisees should be aware of the potential for audits and the associated costs if any issues arise.