eConnect, an online retailer, fulfills its online orders by shipping its products directly to customers in all 50 states. eConnect does not have a brick-and-mortar store presence in any state, but does operate distribution centers in various states across the country, including State X. Consistent with its practice in all 50 states, eConnect does not collect or remit sales tax to State X.

In court rulings in 2005, State X had taken the position that operating a distribution center within a state constitutes nexus and thus would subject that company to collect and remit sales tax on all sales within that state.

As of December 31, 2011, eConnect has operated its distribution center in State X for five years and has never collected or remitted sales tax to State X. The company considers the risk of detection to not be probable, hence no contingency needs to be recognized. However, eConnect has estimated the total amount of sales tax payable to the state for the past five years to be $50 million plus $6 million in interest and $4 million in penalties

On March 15, 2012, Mr. Needmoney, the governor of State X, established a tax amnesty program. The program provides that any unregistered taxpayer who voluntarily registers to collect sales tax on a prospective basis will be forgiven (1) 50 percent of all unpaid sales tax and (2) all interest and penalties on unpaid taxes. On the same date of this announcement, eConnect management decides to take advantage of this program.

On June 15, 2012, eConnect completes the necessary paperwork and other actions to participate in the program and pays State X $25 million to settle its obligation through December 31, 2011.

Required: (Please explain your answer!)

Should eConnect restate financial statements prior to 2011 and why?

What amounts, if any, should be recognized in the financial statements associated with the $25 million payment on June 15, 2012?