Is the establishment of a reserve for uncollected taxes based on prior year adjustments due to adjudicated tax appeals allowed?

The establishment of a reserve for uncollected taxes based on prior year adjustments due to adjudicated tax appeals is allowed because it serves as a prudent financial practice for municipalities. This reserve ensures that a government entity can account for potential losses in revenue that may occur due to appeals from property owners contesting their tax assessments. By recognizing this reserve, a municipality demonstrates fiscal responsibility and transparency in its budgeting process, reflecting an understanding that not all assessed taxes will necessarily be collected as anticipated.

This approach allows municipalities to set aside funds to cover anticipated shortfalls, improving their stability and financial planning processes. Moreover, it aligns with the principles of conservative budgeting, where anticipated revenues are adjusted to more accurately reflect expected collections based on historical data and results from appeals. Establishing such reserves is often considered standard practice in local government finance to mitigate the risks associated with fluctuating tax revenues.