McDonalds 2011 Annual Report Download - page 39

The following table presents a reconciliation of the beginning
and ending amounts of unrecognized tax benefits:
In millions 2011 2010
Balance at January 1 $572.6 $492.0
Decreases for positions taken in prior years (50.6) (27.1)
Increases for positions taken in prior years 24.3 53.3
Increases for positions related to the current
year 54.8 102.0
Settlements with taxing authorities (14.4) (17.4)
Lapsing of statutes of limitations (21.7) (30.2)
Balance at December 31(1) $565.0 $572.6
(1) Of this amount, $564.3 and $535.9 are included in long-term liabilities on the
Consolidated balance sheet for 2011 and 2010, respectively. The remainder is
included in deferred income taxes and income taxes payable on the Consolidated
balance sheet.
In 2010, the Internal Revenue Service (IRS) concluded its field
examination of the Company’s U.S. federal income tax returns for
2007 and 2008. In connection with this examination, the
Company received notices of proposed adjustments from the IRS
related to certain foreign tax credits of about $400 million, exclud-
ing interest and potential penalties. The Company disagrees with
the IRS’ proposed adjustments. The Company has filed a protest
with the IRS Appeals Office and expects resolution on this issue
in 2012. The Company believes that the liabilities recorded
related to this matter are appropriate and adequate and have been
determined in accordance with ASC 740 – Income Taxes.
The Company is also under audit in multiple state tax juris-
dictions where it is reasonably possible that the audits could be
completed within 12 months. Due to the expected resolution of
the 2007 and 2008 IRS Appeals process, the possible completion
of the aforementioned audits and the expiration of the statute of
limitations in multiple tax jurisdictions, it is reasonably possible that
the total amount of unrecognized tax benefits could decrease
within the next 12 months by $130 million to $140 million, of
which $30 million to $40 million could favorably affect the effec-
tive tax rate.
In addition, the Company is currently under audit in multiple
tax jurisdictions where completion of the tax audits is not
expected within 12 months. However, it is reasonably possible
that, as a result of audit progression within the next 12 months,
there may be new information that causes the Company to
reassess the total amount of unrecognized tax benefits recorded.
While the Company cannot estimate the impact that new
information may have on our unrecognized tax benefit balance,
we believe that the liabilities that are recorded are appropriate
and adequate as determined under ASC 740.
The Company is generally no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax
authorities for years prior to 2005.
The Company had $39.6 million and $44.4 million accrued
for interest and penalties at December 31, 2011 and 2010,
respectively. The Company recognized interest and penalties
related to tax matters of $4.8 million in 2011, $29.0 million in
2010, and $1.5 million in 2009, which are included in the provi-
sion for income taxes.
Deferred U.S. income taxes have not been recorded for
temporary differences related to investments in certain foreign
subsidiaries and corporate joint ventures. These temporary
differences were approximately $12.6 billion at
December 31, 2011 and consisted primarily of undistributed
earnings considered permanently invested in operations outside
the U.S. Determination of the deferred income tax liability on
these unremitted earnings is not practicable because such
liability, if any, is dependent on circumstances existing if and
when remittance occurs.
McDonald’s Corporation Annual Report 2011 37