How does Checkers account for income taxes according to ASC 740?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
nse does not include expenses incurred for coupons and discounts, which are recorded as reductions to restaurant sales at the time of sale.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Income Taxes
The Company accounts for income taxes based upon the provisions of ASC 740, Income Taxes. Under the asset and liability method required by ASC 740, Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets must be reduced by a valuation allowance when it becomes more likely than not that they will not be realized. Realization of the deferred tax assets is dependent on generating sufficient taxable income in the periods when the deferred tax assets are available to be utilized. The Company has recorded a valuation allowance against the deferred tax assets that are not realizable under this standard. The deferred tax assets are reviewed periodically for recoverability, and valuation allowances are adjusted as necessary. Under ASC 740, Income Taxes, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense or benefit in the period that includes the enactment date.
The Company evaluates uncertain tax positions based upon one of the following conditions: (1) the tax position is not more likely than not to be sustained; (2) the tax position is more likely than not to be sustained, but for a lesser amount; or (3) the tax position is more likely than not to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) the Company presumes the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information;
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company accounts for income taxes based on the provisions of ASC 740, Income Taxes. This involves using the asset and liability method, where deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial statement carrying amounts of assets and liabilities and their tax bases. These assets and liabilities are measured using the enacted tax rates expected to apply when the temporary differences are settled.
Checkers reduces deferred tax assets by a valuation allowance if it's more likely than not that they won't be realized. The realization of these assets depends on the company generating sufficient taxable income in the periods when the assets can be used. The company has recorded a valuation allowance against deferred tax assets that are not realizable under this standard. These assets are periodically reviewed for recoverability, and valuation allowances are adjusted as necessary. Changes in tax rates impact deferred tax assets and liabilities, and these effects are recognized in the income tax expense or benefit in the period that includes the enactment date.
Additionally, Checkers is involved in various tax matters with uncertainty regarding the ultimate outcome. For these, the company records a liability or reduces a deferred tax asset for unrecognized tax benefits, as required by ASC 740. For the fiscal year ended December 30, 2024, and the period ended January 1, 2024, Checkers recorded $0 million and $0.1 million of unrecognized tax benefits, respectively, of which $0 million and $.01 million represents interest expense. Checkers is subject to tax in U.S. federal and various state and local jurisdictions and may be subject to income tax examinations for tax years beginning 2021 to the current year. These accounting practices can significantly impact Checkers' financial statements and are important for prospective franchisees to understand, as they reflect the company's approach to managing its tax obligations and potential risks.