What conditions does Checkers evaluate uncertain tax positions based upon?
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, the company assesses uncertain tax positions based on specific conditions. These conditions include situations where (1) the tax position is deemed not more likely than not to be sustained, (2) the tax position is considered more likely than not to be sustained, but for a lesser amount than originally claimed, or (3) the tax position is expected to be sustained, but not within the same financial period in which it was initially taken.
In evaluating the uncertainty of a tax position, Checkers operates under several key assumptions. First, the company presumes that the relevant taxing authority will examine the tax position with full knowledge of all pertinent information. Second, the technical merits of a tax position are assessed based on authoritative sources such as legislation, statutes, legislative intent, regulations, rulings, and case law, considering their applicability to the specific facts and circumstances. Third, each tax position is evaluated independently, without considering the possibility of offsetting or aggregating it with other tax positions.
Checkers recognizes that tax audits and resolutions can take several years to conclude, and the outcomes are inherently uncertain. The company accounts for interest and penalties associated with uncertain tax positions as part of its overall income tax provision. Despite the uncertainty, Checkers believes it has adequately provided for any adjustments, including interest and penalties, that may arise from these audits. This approach ensures that the company's financial statements accurately reflect potential tax liabilities and related expenses.