Problem 7 [UTB] Following are the tax entries made by ABC to record income tax expense for the year ended December 31, 2020. $10,000 $10,000 Income tax expense Income tax payable Income tax expense Deferred income tax liability $30,000 $30,000 Deferred income tax liability Liability for uncertain tax positions $ 30,000 $30,000 The deferred tax liability relates to a taxable temporary difference on an aggressive tax position (a deduction) taken on the company's corporate tax return in 2020. This taxable temporary difference constitutes the only temporary difference for 2020. It is unclear whether ABC is entitled to take the deduction on the 2020 tax return or the 2021 tax return. In other words, the timing of the deduction is in doubt. ABC took the position that the deduction was appropriate in 2020, although there is significant uncertainty as to whether the IRS will agree if the tax return is audited. In fact, the concern is that the IRS will (in the event of an audit) disallow the deduction for 2020 and force the company to claim the deduction on the 2021 tax return. There were no deferred tax asset or deferred tax liabilities reported on the December 31, 2019 balance sheet. Required 1. What inference can you draw as to whether ABC met the "more likely than not criterion for recognizing uncertain tax benefits? Choose your answer from the options in the drop-down list in the yellow cell (e.g., "A" in the drop-down box corresponds to Option A as described in cell B37) 1 Options A ABC derecognized ALL the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was not met. B ABC derecognized ALL the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was met. C ABC recognized ALL the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was not met. D ABC recognized ALL the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was met. E ABC derecognized SOME of the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was not met. F ABC derecognized SOME of the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was met. Problem 7 [UTB] Following are the tax entries made by ABC to record income tax expense for the year ended December 31, 2020. $10,000 $10,000 Income tax expense Income tax payable Income tax expense Deferred income tax liability $30,000 $30,000 Deferred income tax liability Liability for uncertain tax positions $ 30,000 $30,000 The deferred tax liability relates to a taxable temporary difference on an aggressive tax position (a deduction) taken on the company's corporate tax return in 2020. This taxable temporary difference constitutes the only temporary difference for 2020. It is unclear whether ABC is entitled to take the deduction on the 2020 tax return or the 2021 tax return. In other words, the timing of the deduction is in doubt. ABC took the position that the deduction was appropriate in 2020, although there is significant uncertainty as to whether the IRS will agree if the tax return is audited. In fact, the concern is that the IRS will (in the event of an audit) disallow the deduction for 2020 and force the company to claim the deduction on the 2021 tax return. There were no deferred tax asset or deferred tax liabilities reported on the December 31, 2019 balance sheet. Required 1. What inference can you draw as to whether ABC met the "more likely than not criterion for recognizing uncertain tax benefits? Choose your answer from the options in the drop-down list in the yellow cell (e.g., "A" in the drop-down box corresponds to Option A as described in cell B37) 1 Options A ABC derecognized ALL the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was not met. B ABC derecognized ALL the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was met. C ABC recognized ALL the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was not met. D ABC recognized ALL the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was met. E ABC derecognized SOME of the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was not met. F ABC derecognized SOME of the tax benefits flowing from the aggressive tax position. So, apparently the "more likely than not" criterion was met