American Express 2013 Annual Report Download - page 97

Download and view the complete annual report

Please find page 97 of the 2013 American Express annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is under continuous examination by the Internal
Revenue Service (IRS) and tax authorities in other countries and states
in which the Company has significant business operations. The tax
years under examination and open for examination vary by
jurisdiction. The IRS has completed its field examination of the
Company’s federal tax returns for years through 2007; however,
refund claims for certain years continue to be reviewed by the IRS. In
addition, the Company is currently under examination by the IRS for
the years 2008 through 2011.
The following table presents changes in unrecognized tax benefits:
(Millions) 2013 2012 2011
Balance, January 1 $ 1,230 $ 1,223 $ 1,377
Increases:
Current year tax positions 124 51 77
Tax positions related to prior years 176 64 247
Decreases:
Tax positions related to prior years (371) (44) (457)
Settlements with tax authorities (94) (25) (2)
Lapse of statute of limitations (21) (37) (19)
Effects of foreign currency translations —(2) —
Balance, December 31 $ 1,044 $ 1,230 $ 1,223
Included in the unrecognized tax benefits of $1.0 billion for
December 31, 2013 and $1.2 billion for both December 31, 2012 and
2011, are approximately $427 million, $452 million and $440 million,
respectively, that, if recognized, would favorably affect the effective tax
rate in a future period.
The Company believes it is reasonably possible that its
unrecognized tax benefits could decrease within the next 12 months
by as much as $632 million principally as a result of potential
resolutions of prior years’ tax items with various taxing authorities.
The prior years’ tax items include unrecognized tax benefits relating to
the deductibility of certain expenses or losses and the attribution of
taxable income to a particular jurisdiction or jurisdictions. Of the $632
million of unrecognized tax benefits, approximately $474 million
relates to amounts that if recognized would be recorded to
shareholders’ equity and would not impact the effective tax rate. With
respect to the remaining $158 million, it is not possible to quantify the
impact that the decrease could have on the effective tax rate and net
income due to the inherent complexities and the number of tax years
open for examination in multiple jurisdictions. Resolution of the prior
years’ items that comprise this remaining amount could have an
impact on the effective tax rate and on net income, either favorably
(principally as a result of settlements that are less than the liability for
unrecognized tax benefits) or unfavorably (if such settlements exceed
the liability for unrecognized tax benefits).
Interest and penalties relating to unrecognized tax benefits are
reported in the income tax provision. During the years ended
December 31, 2013, 2012 and 2011, the Company recognized benefits
of approximately $31 million, $8 million and $63 million, respectively,
of interest and penalties. The Company has approximately $144
million and $155 million accrued for the payment of interest and
penalties as of December 31, 2013 and 2012, respectively.
Discontinued operations for 2011 included the impact of a $36
million tax benefit related to the favorable resolution of certain prior
years’ tax items related to American Express Bank, Ltd., which was
sold to Standard Chartered PLC during the quarter ended March 31,
2008.
95