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 21% tax rate, the deduction results in a $210 uncertain tax benefit.

Required:

For each of the following independent cases, 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.

Transcribed Image Text:

Case 1 Case 2 Case 3 Management's assessment of the likelihood of the uncertain tax position being sustained based on technical merits 65% 40% 80% Likelihood of realizing $210 Likelihood of realizing $150 Likelihood of realizing $60 Likelihood of realizing $0 10 5 55 30 5 25 15 20 45 40 45