How does Del Taco recognize interest and penalties related to unrecognized tax benefits?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
We recognize interest and, when applicable, penalties related to unrecognized tax benefits as a component of our income tax provision.
Authoritative guidance issued by the FASB prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Refer to Note 11, Income Taxes, for additional information.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 58)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax provision. This means that when Del Taco has uncertain tax positions that do not meet a minimum probability threshold for recognition, any associated interest and penalties are included as part of the overall income tax expense reported in their financial statements.
This approach is consistent with accounting standards issued by the Financial Accounting Standards Board (FASB), which require a minimum probability threshold for recognizing tax benefits in financial statements. Specifically, a tax position must be more likely than not to be sustained upon examination by tax authorities. This includes any potential appeals or litigation, based on the technical merits of the position.
For a prospective Del Taco franchisee, this accounting treatment is unlikely to have a direct impact on their day-to-day operations. However, it is relevant for understanding Del Taco's overall financial health and tax management practices. Franchisees should be aware that tax-related issues, including unrecognized tax benefits and associated penalties, can affect the franchisor's profitability and financial stability, which in turn could indirectly impact the franchise system.