Does the Devon Creek company have a provision for federal and state income taxes?
Devon_Creek Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company is structured as a limited liability company under the laws of the state of Missouri. Accordingly, the income or loss of the Company will be included in the income tax returns of the member. Therefore, there is no provision for federal and state income taxes.
The Company follows the guidance under Accounting Standards Codification ("ASC") Topic 740, Accounting for Uncertainty in Income Taxes. ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in the tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the member rather than the Company. Accordingly, there would be no effect on the Company's financial statements.
The Company's income tax returns are subject to examination by taxing authorities for a period of three years from the date they are filed. As of December 31, 2023, no tax years were subject to examination.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 45)
What This Means (2024 FDD)
According to the 2024 Devon Creek Franchise Disclosure Document, Devon Creek, as a limited liability company (LLC) structured under Missouri law, does not have a provision for federal and state income taxes. Instead, the company's income or loss is included in the income tax returns of its member(s). This means that any tax obligations are passed directly to the member(s) rather than being handled at the company level. This structure is common for LLCs, as it allows profits and losses to be directly allocated to the owners for tax purposes.
Devon Creek follows the guidelines outlined in Accounting Standards Codification (ASC) Topic 740 concerning accounting for uncertainty in income taxes. This involves using a more-likely-than-not measurement approach to assess the impact of uncertain tax positions on the financial statements. If taxing authorities were to disallow any tax positions taken by Devon Creek, the resulting income taxes would be imposed on the member(s), not the company itself. Consequently, these potential tax issues would not affect Devon Creek's financial statements directly.
As of December 31, 2023, Devon Creek's income tax returns were open to examination by taxing authorities for the preceding three years. However, the document states that no tax years were subject to examination at that time. For a prospective franchisee, this information indicates that Devon Creek's tax structure is pass-through, meaning the franchisee should be aware that the company itself does not pay income taxes, but the member(s) do. This may have implications for how the franchisee assesses the overall financial health and stability of the franchise system.