McDonalds 2012 Annual Report Download - page 43

The following table presents a reconciliation of the beginning
and ending amounts of unrecognized tax benefits:
In millions 2012 2011
Balance at January 1 $565.0 $572.6
Decreases for positions taken in prior years (65.7) (50.6)
Increases for positions taken in prior years 36.9 24.3
Increases for positions related to the current
year 47.3 54.8
Settlements with taxing authorities (95.8) (14.4)
Lapsing of statutes of limitations (5.3) (21.7)
Balance at December 31(1) $482.4 $565.0
(1) Of this amount, $481.7 million and $564.3 million are included in long-term liabilities
on the Consolidated balance sheet for 2012 and 2011, respectively. The remainder
is included in deferred income taxes on the Consolidated balance sheet.
In December 2012, the Company reached a final settlement
with the Internal Revenue Service (“IRS”) Appeals Division
regarding its U.S. federal income tax returns for 2007 and 2008.
The Company agreed to a settlement of about $80 million,
primarily related to proposed foreign tax credit adjustments of
about $400 million. The liabilities previously recorded and
determined in accordance with ASC 740—Income Taxes related
to this matter were adequate. Additionally, no cash payment was
made related to this settlement as the Company had previously
made a tax deposit with the IRS. The agreement did not have a
material impact on the Company’s cash flows, results of oper-
ations or financial position.
The Company’s 2009 and 2010 U.S. federal income tax
returns are currently under examination. Additionally, the Com-
pany is currently under audit in multiple state and foreign tax
jurisdictions where it is reasonably possible that the audits could
be completed within 12 months. Due to the possible completion
of these 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 $150 million to $160 million, of which $10
million to $30 million could favorably affect the effective 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 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 2006.
The Company had $37.7 million and $39.6 million accrued
for interest and penalties at December 31, 2012 and 2011,
respectively. The Company recognized interest and penalties
related to tax matters of $11.2 million in 2012, $4.8 million in
2011, and $29.0 million in 2010, 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 $14.8 billion at December 31,
2012 and consisted primarily of undistributed earnings consid-
ered 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 2012 Annual Report 41