Nutrition Corporation manufactures and sells healthy foods products online to consumers and delivers the products ordered online by shipping the goods directly to customers in all 50 states. Nutrition does not have a brick-and-mortar store presence in any state, but does operate distribution centers in various states across the country, including Virginia. Consistent with its practice in all 50 states, Nutrition does not collect or remit sales tax to Virginia. In recent court rulings, the state of Virginia has taken the position that operating a distribution center within a state constitutes nexus and this would subject that company to collect and remit sales tax on all sales within that state. As of December 31, 2019, Nutrition has operated its distribution center in Virginia for five years and has never collected or remitted sales tax to Virginia. Although the company considers the risk of detection to not be probable, Nutrition 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, 2020, Governor Janson, the governor of Virginia, 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. Nutrition management decides to take advantage of this program. On June 15, 2020, Nutrition completes the necessary paperwork and other actions to participate in the program and pays Virginia $25 million to settle its obligation through December 31, 2019.

Required: You are a staff accountant working on the audit of Nutrition Corp. You have been asked by the audit partner to write a memo on the appropriate accounting treatment for Virginia sales tax. Your analysis should include (1) the accounting treatment for the unpaid sales tax included in the financial statements for the year-ended December 31, 2019 (assume the 2019 financial statements were issued on February 28, 2020), (2) the accounting treatment for Nutritions decision to participate in the tax amnesty program announced on March 15, 2020, and (3) the accounting treatment for the $25 million payment made on June 15, 2020.

When discussing any of the accounting treatments, you should reference the appropriate FASB guidance which dictates the treatment (see case instructions). Journal entries can be included to assist with your description of the appropriate treatment.