Before year-end, a company is assessed $250,000 in additional taxes as a result of an IRS audit. The companys tax attorney believes that a settlement with the IRS can be reached for $120,000. Settlement has not been reached before the financial statements are issued.

Please cite reference.

1. Should the company record a loss reserve at year end, and if so, for how much?
2. Should the company disclose this matter in the footnotes to the companys financial statements at year end?