Two years ago, Aggre Inc. recognized the tax benefit of an uncertain tax position. Income tax expense in that year was reduced by $20,000 as a result. In addition, Aggre recorded a $5,000 tax liability for unrecognized benefits for the same tax position. During the current year, the uncertainty is resolved and a benefit of $22,000 is upheld. By what amount is current-year income tax expense affected by the resolution of the prior uncertainty?

$2,000 decrease.

Explanation:

Two years ago, Aggre Inc. recognized the tax benefit of an uncertain tax position. Income tax expense in that year was reduced by $20,000 as a result. In addition, Aggre recorded a $5,000 tax liability for unrecognized benefits for the same tax position. During the current year, the uncertainty is resolved and a benefit of $22,000 is upheld. The amount by which current-year income tax expense affected by the resolution of the prior uncertainty is $2000 decrease.

$2,000 decrease in income tax expense

Explanation:

Two years ago Aggre recorded a $20,000 income tax expenses, that means that they lowered their income tax by $20,000 due to an uncertain tax position (UTP).

First we must understand what a UTP is: a tax position that is not 100% certain to turn out that way, but is considered more likely than not, therefore it can be recognized in the financial statements until things get clear.

Finally two years later, Aggre was right and the tax benefit was even larger, equal to $22,000. Now it must recognize the portion that was not recognized before = $22,000 - $20,000 = $2,000 decrease in income tax expense

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