What does Checkers believe regarding the amounts of tax provided for adjustments resulting from tax audits?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
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; (2) the technical merits of a tax position are derived from authorities, such as legislation and statutes, legislative intent, regulations, rulings, and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. The Company recognizes interest and penalties associated with uncertain tax positions as part of its income tax provision. A number of years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. Although the outcome of tax audits is always uncertain, the Company believes adequate amounts of tax, including interest and penalties, have been provided for any adjustments that are expected to result from those years.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, Checkers believes that it has provided adequate amounts of tax, including interest and penalties, for any adjustments expected to result from tax audits. This reflects Checkers's approach to handling uncertain tax positions, where they evaluate the likelihood of a tax position being sustained based on various conditions and authorities.
For a prospective franchisee, this indicates that Checkers takes a proactive approach to managing its tax liabilities and potential audit adjustments. This can provide some reassurance that the company is not underestimating its tax obligations, which could lead to unexpected financial burdens.
However, the FDD also notes that the outcome of tax audits is always uncertain. While Checkers believes it has made adequate provisions, there is still a risk that actual tax liabilities could exceed the amounts provided. Franchisees should be aware of this uncertainty and consider it when evaluating the financial stability of the company. It is common practice for companies to make provisions for potential tax adjustments, but the adequacy of these provisions is ultimately subject to the outcome of audits and the interpretation of tax laws.