American Express 2010 Annual Report Download - page 32

INCOME TAXES
Description Assumptions/Approach Used
Effect if Actual Results Differ
from Assumptions
The Company is subject to the income tax
laws of the United States, its states and
municipalities and those of the foreign
jurisdictions in which the Company
operates. These tax laws are complex, and
the manner in which they apply to the
taxpayer’s facts is sometimes open to
interpretation. In establishing a provision
for income tax expense, the Company must
make judgments about the application of
these inherently complex tax laws.
Unrecognized Tax Benefits
The Company establishes a liability for
unrecognized tax benefits, which are the
differences between a tax position taken or
expected to be taken in a tax return and
the benefit recognized in the financial
statements.
Unrecognized Tax Benefits
In establishing a liability for an
unrecognized tax benefit, assumptions may
be made in determining whether a tax
position is more likely than not to be
sustained upon examination by the taxing
authority and also in determining the
ultimate amount that is likely to be
realized. A tax position is recognized only
when, based on management’s judgment
regarding the application of income tax
laws, it is more likely than not that the tax
position will be sustained upon
examination. The amount of tax benefit
recognized is based on the Company’s
assessment of the most likely outcome on
ultimate settlement with the taxing
authority. This measurement is based on
many factors, including whether a tax
dispute may be settled through negotiation
with the taxing authority or is only subject
to review in the courts. As new information
becomes available, the Company evaluates
its tax positions, and adjusts its
unrecognized tax benefits, as appropriate.
Unrecognized Tax Benefits
If the tax benefit ultimately realized differs
from the amount previously recognized in
the income tax provision, the Company
recognizes an adjustment of the
unrecognized tax benefit through the
income tax provision.
Deferred Taxes
Deferred tax assets and liabilities are
determined based on the differences
between the financial statement and tax
bases of assets and liabilities using the
enacted tax rates expected to be in effect
for the years in which the differences are
expected to reverse. A valuation allowance
is established when management
determines that it is more likely than not
that all or some portion of the benefit of
the deferred tax asset will not be realized.
Deferred Taxes
Since deferred taxes measure the future
tax effects of items recognized in the
financial statements, certain estimates and
assumptions are required to determine
whether it is more likely than not that all
or some portion of the benefit of a
deferred tax asset will not be realized. In
making this assessment, management
analyzes and estimates the impact of
future taxable income, reversing temporary
differences and available tax planning
strategies. These assessments are
performed quarterly, taking into account
any new information.
Deferred Taxes
Should a change in facts or circumstances
lead to a change in judgment about the
ultimate realizability of a deferred tax
asset, the Company records or adjusts the
related valuation allowance in the period
that the change in facts or circumstances
occurs, along with a corresponding increase
or decrease to the income tax provision.
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AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW