Microsoft 2012 Annual Report Download - page 67

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The aggregate changes in the balance of unrecognized tax benefits were as follows:
(In millions)
Year Ended June 30,
2012
2011
2010
Balance, beginning of year
$
6,935
$
6,542
$
5,403
Decreases related to settlements
(16
)
(632
)
(57
)
Increases for tax positions related to the current year
481
739
1,012
Increases for tax positions related to prior years
118
405
364
Decreases for tax positions related to prior years
(292
)
(119
)
(166
)
Decreases due to lapsed statutes of limitations
(24
)
0
(14
)
Balance, end of year
$
7,202
$
6,935
$
6,542
During the third quarter of fiscal year 2011, we reached a settlement of a portion of an I.R.S. audit of tax years 2004 to
2006, which reduced our income tax expense by $461 million. While we settled a portion of the I.R.S. audit, we remain
under audit for these years. In February 2012, the I.R.S. withdrew its 2011 Revenue Agents Report and reopened the
audit phase of the examination. As of June 30, 2012, the primary unresolved issue relates to transfer pricing, which could
have a significant impact on our financial statements if not resolved favorably. We believe our allowances for tax
contingencies are appropriate. We do not believe it is reasonably possible that the total amount of unrecognized tax
benefits will significantly increase or decrease within the next 12 months, as we do not believe the remaining open issues
will be resolved within the next 12 months. We also continue to be subject to examination by the I.R.S. for tax years 2007
to 2011.
We are subject to income tax in many jurisdictions outside the U.S. Certain jurisdictions remain subject to examination for
tax years 1996 to 2011, some of which are currently under audit by local tax authorities. The resolutions of these audits
are not expected to be material to our financial statements.
NOTE 14 — UNEARNED REVENUE
Unearned revenue comprises mainly unearned revenue from volume licensing programs, and payments for offerings for
which we have been paid in advance and we earn the revenue when we provide the service or software or otherwise
meet the revenue recognition criteria.
Volume Licensing Programs
Unearned revenue from volume licensing programs represents customer billings for multi-year licensing arrangements
paid either at inception of the agreement or annually at the beginning of each billing coverage period and accounted for as
subscriptions with revenue recognized ratably over the billing coverage period.
Other
Also included in unearned revenue are payments for post-delivery support and consulting services to be performed in the
future; Xbox LIVE subscriptions and prepaid points; sales of Windows 7 with an option to upgrade to Windows 8 at a
discounted price (the “Windows Upgrade Offer”); Microsoft Dynamics business solutions products; Skype prepaid credits
and subscriptions; OEM minimum commitments; and other offerings for which we have been paid in advance and earn
the revenue when we provide the service or software, or otherwise meet the revenue recognition criteria.