Why are there no provisions for income taxes reflected in Craters & Freighters' financial statements?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
Income Taxes
The Company has elected to be taxed under the S-Corporation provisions of the Internal Revenue Code. No provision for income taxes is reflected in the financial statements since this is a personal liability of the shareholder.
Uncertain Tax Positions
The Company is a pass-through entity and any changes as the result of an examination by the IRS or the Colorado Department of Revenue would not have an impact at the entity level.
The Company has adopted FASB ASC 740-10-25, Accounting for Uncertainty in Income Taxes. The Company will record a liability for uncertain tax positions when it is more likely than not that a tax position would not be sustained if examined by the taxing authority. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and authoritative rulings.
Note 1: Summary of Significant Accounting Policies (Continued)
Uncertain Tax Positions (Continued)
The Company's evaluation on December 31, 2024 and 2023 revealed no uncertain tax positions that would have a material impact on the financial statements. The 2020 through 2023 tax years remain subject to examination by the IRS. The Company does not believe that any reasonably possible changes will occur within the next twelve months that will have a material impact on the financial statements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to the 2025 FDD, Craters & Freighters does not reflect provisions for income taxes in its financial statements because it has elected to be taxed under the S-Corporation provisions of the Internal Revenue Code. This means that Craters & Freighters is a pass-through entity, and the responsibility for income taxes falls on the shareholder(s) personally rather than the company itself. Therefore, these taxes are a personal liability of the shareholder, not a corporate expense.
As a pass-through entity, any changes resulting from an examination by the IRS or the Colorado Department of Revenue would not impact Craters & Freighters at the entity level. The FDD states that Craters & Freighters has adopted FASB ASC 740-10-25, Accounting for Uncertainty in Income Taxes, and will record a liability for uncertain tax positions only when it is more likely than not that a tax position would not be sustained if examined by a taxing authority.
Craters & Freighters' evaluation on December 31, 2024 and 2023, revealed no uncertain tax positions that would have a material impact on the financial statements. The 2020 through 2023 tax years remain subject to examination by the IRS. The company does not anticipate any reasonably possible changes within the next twelve months that will have a material impact on the financial statements. This indicates that Craters & Freighters believes its tax positions are sound and unlikely to be challenged.