Uncertain tax position: If a company plans to control its tax expenses with forceful techniques and gives tax authorities a chance to disallow the expenses while computing the taxable income, it is termed as the uncertain tax position. The tax authority may disallow either full or partial expenses without even providing a reason. This may cause an increase or a decrease in the tax liability or refund.
Example: A manufacturer of cars, B Limited forcefully restrains its accounting department’s employees from maintaining proper records for transactions. The organization also gives least importance to vouching the transactions. B Limited’s position is uncertain because the expenses and income have minimum records and are not properly vouched. Therefore, tax authorities have the right to disallow the company’s expenses.
To define: To define the guidelines for accounting the uncertain tax position.
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