Under the Internal Revenue Code, how is Hyper Kidz taxed?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
Income Taxes
The Company has elected to be taxed as a "Partnership" under the provisions of the Internal Revenue Code. Under those provisions, taxable income and losses of the Company are reported on the income tax returns of its members and no provisions for federal or state taxes have been recorded on the accompanying balance sheet.
The Company adopted ASC 740-10-25-6 "Accounting for Uncertainty in Income Taxes", that requires the Company disclose uncertain tax positions. Under the standard an entity may only recognize or continue to recognize tax positions that meet a "more likely than not" threshold upon examination by taxing authorities.
Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements or that would affect the Company's members. The Company's evaluation was performed for the years ended December 31, 2023, 2022, and 2021 for U.S. Federal Income Tax and the State of Maryland Income Tax.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 52)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, the company has elected to be taxed as a "Partnership" under the provisions of the Internal Revenue Code. This means that the taxable income and losses of Hyper Kidz are reported on the income tax returns of its members. Consequently, the company does not record provisions for federal or state taxes on its balance sheet.
This election has significant implications for Hyper Kidz franchisees. As a partnership, the individual members (which would include the franchisees) are directly responsible for reporting and paying taxes on their share of the company's income or losses. This contrasts with a corporation, where the company itself pays corporate income taxes, and then shareholders may pay taxes again on dividends received.
Hyper Kidz also adopted ASC 740-10-25-6, "Accounting for Uncertainty in Income Taxes," which requires the company to disclose uncertain tax positions. However, based on its evaluation for the years ended December 31, 2023, 2022, and 2021, Hyper Kidz has concluded that there are no significant uncertain tax positions that would need recognition in its financial statements or that would affect its members. This evaluation was performed for U.S. Federal Income Tax and the State of Maryland Income Tax.