Sprint - Nextel 2008 Annual Report Download - page 95

SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2009, we had federal operating loss carryforwards of $6.4 billion and state
operating loss carryforwards of $12 billion. Related to these loss carryforwards are federal tax benefits of
$2.2 billion and net state tax benefits of $554 million. Approximately $324 million of the federal operating loss
carryforwards expire prior to 2014 and the remaining $6.1 billion expire in varying amounts between 2018 and
2029. The state operating loss carryforwards expire in varying amounts through 2029.
In addition, we had available, for income tax purposes, federal alternative minimum tax net operating
loss carryforwards of $5.3 billion and state alternative minimum tax net operating loss carryforwards of
$1.2 billion. The loss carryforwards expire in varying amounts through 2029. We also had available capital loss
carryforwards of $108 million. Related to these capital loss carryforwards are tax benefits of $38 million. Capital
loss carryforwards of $104 million expire in 2013 and the remaining $4 million expire in 2014.
We also had available $479 million of federal and state income tax credit carryforwards as of
December 31, 2009. Included in this amount are $124 million of income tax credits which expire prior to 2014
and $219 million which expire in varying amounts between 2014 and 2029. The remaining $136 million do not
expire.
Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely than
not that the asset will not be realized. The valuation allowance related to deferred income tax assets increased by
$301 million in 2009 and decreased by $12 million in 2008. The 2009 increase primarily results from a $306
million fourth quarter non-cash charge to establish additional valuation allowance on the deferred tax assets
related to federal and state net operating and capital loss carryforwards. The 2008 decrease is primarily related to
the utilization or expiration of income tax carryforwards and a reclassification to deferred tax liabilities.
The fourth quarter 2009 valuation allowance increase was necessary because our recent history of
consecutive annual losses prevents us from continuing to rely on expected future income in evaluating the
realizability of our deferred tax assets. Therefore, we do not expect to record significant tax benefits if additional
operating losses are incurred in 2010.
We believe it is more likely than not that our deferred income tax assets, net of the valuation allowance,
will be realized based on current income tax laws and expectations of future taxable income stemming from the
reversal of existing deferred tax liabilities. Uncertainties surrounding income tax law changes, shifts in
operations between state taxing jurisdictions and future operating income levels may, however, affect the
ultimate realization of all or some of these deferred income tax assets.
Unrecognized tax benefits are established for uncertain tax positions based upon estimates regarding
potential future challenges to those positions at the largest amount that is greater than fifty percent likely of being
realized upon ultimate settlement. These estimates are updated at each reporting date based on the facts,
circumstances and information available. Interest related to these unrecognized tax benefits is recognized in
interest expense. Penalties are recognized as additional income tax expense. The total unrecognized tax benefits
attributable to uncertain tax positions as of December 31, 2009 and December 31, 2008 were $284 million and
$449 million, respectively. At December 31, 2009, the total unrecognized tax benefits included items that would
favorably affect the income tax provision by $208 million, if recognized. As of December 31, 2009 and 2008, the
accrued liability for income tax related interest was $42 million and $40 million, respectively. The accrued
liability for penalties was $7 million and $13 million as of December 31, 2009 and 2008, respectively.
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