How does Checkers treat interest and penalties associated with uncertain tax positions?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
nd 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; (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.
Disclosure About Fair Value of Financial Instruments
The Company applies the guidance in ASC 820, Fair Value Measurements, in recording and/or disclosing assets and liabilities at fair value.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company recognizes interest and penalties associated with uncertain tax positions as part of its income tax provision. This means that when Checkers identifies a tax position that has some uncertainty regarding its validity, any potential interest or penalties that might arise from that uncertainty are included in the company's overall income tax expenses.
Checkers evaluates uncertain tax positions based on several conditions, including whether the tax position is more likely than not to be sustained. The company presumes that the tax position will be examined by the relevant taxing authority with full knowledge of all relevant information. Each tax position is evaluated without considering the possibility of offset or aggregation with other tax positions taken.
While the timing of tax audits and resolutions is uncertain, Checkers believes it has provided adequate amounts for expected adjustments, including interest and penalties. For the fiscal year ended December 30, 2024 (Successor) and the period ended January 1, 2024 (Successor), the company recorded $0 million and $0.1 million of unrecognized tax benefits, respectively, of which $0 million and $.01 million represents interest expense. For the periods ended January 1, 2024 (Successor) and January 2, 2023 (Predecessor), Checkers recorded $0.1 million and less than $0.1 million of unrecognized tax benefits, respectively, of which $.01 million and less than $0.1 million represents interest expense.
For a prospective franchisee, this indicates that Checkers takes a proactive approach to managing tax uncertainties and incorporates potential financial impacts into its financial statements. It also suggests that Checkers has experience with tax audits and makes provisions for potential adjustments. However, it is important to note that tax laws and their interpretation can change, and the ultimate outcome of tax matters is always uncertain.