Collins Company incurs a \($1,000\) book expense that it deducts on its tax return. The tax law is unclear whether this expense is deductible, so the deduction leads to an uncertain tax position.
Assuming a 35% tax rate, the deduction results in a \($350\) tax benefit.

Required:
Consider the following three separate cases and determine how much of the tax benefit associated with the uncertain tax position Collins can recognize and how much of a tax contingency reserve for uncertain tax benefits Collins needs to record.

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Management's assessment of the likelihood of the uncertain tax position being sustained based on technical merits Case I Case 2 Case 3 65% 40% 80% Likelihood of realizing $350 10 5 55 Likelihood of realizing $250 30 5 25 Likelihood of realizing $100 Likelihood of realizing $0 20 35 15 40 55 5