Sprint - Nextel 2010 Annual Report Download - page 81

During 2010, 2009 and 2008, we incurred $210 million, $(3) million, and $(55) million, respectively, of foreign
income (loss) which is included in loss before income taxes. We have no material unremitted earnings of foreign subsidiaries.
Cash refunds for income taxes were received, net, of $139 million and $30 million in 2010 and 2008, respectively. Cash was
paid for income taxes, net, of $31 million in 2009.
In 1998, we acquired $229 million of potential tax benefits related to net operating loss carryforwards in the
controlling interest acquisition of our wireless joint venture, which we call the PCS Restructuring. The benefits acquired in the
PCS Restructuring are subject to certain realization restrictions under various tax laws. We are required to reimburse the former
cable company partners of the joint venture for net operating loss and tax credit carryforward benefits generated before the PCS
Restructuring if realization by us produces a cash benefit that would not otherwise have been realized. The reimbursement will
equal 60% of the net cash benefit received by us and will be made to the former cable company partners in shares of our stock.
As of December 31, 2010, the unexpired carryforward benefits subject to this requirement total $133 million and we
maintained a valuation allowance on the entire amount of these tax benefits.
As of December 31, 2010, we had federal operating loss carryforwards of $7.8 billion and state operating loss
carryforwards of $12.5 billion. Related to these loss carryforwards are federal tax benefits of $2.7 billion and net state tax
benefits of $589 million. Approximately $227 million of the federal operating loss carryforwards expire in 2011 and the
remaining $7.6 billion expire in varying amounts between 2017 and 2030. The state operating loss carryforwards expire in
varying amounts through 2030.
In addition, we had available, for income tax purposes, federal alternative minimum tax net operating loss
carryforwards of $7.3 billion and state alternative minimum tax net operating loss carryforwards of $2.0 billion. The loss
carryforwards expire in varying amounts through 2030. We also had available capital loss carryforwards of $143 million.
Related to these capital loss carryforwards are tax benefits of $51 million. Capital loss carryforwards of $109 million expire in
2013 and the remaining $34 million expire in 2014.
We also had available $473 million of federal and state income tax credit carryforwards as of December 31, 2010.
Included in this amount are $115 million of income tax credits which expire prior to 2014 and $207 million which expire in
varying amounts between 2014 and 2030. The remaining $151 million do not expire.
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, 2010 and
December 31, 2009 were $228 million and $284 million, respectively. At December 31, 2010, the total unrecognized tax
benefits included items that would favorably affect the income tax provision by $188 million, if recognized without an
offsetting valuation allowance adjustment. As of December 31, 2010 and 2009, the accrued liability for income tax related
interest and penalties was $28 million and $49 million, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at January 1
Additions based on current year tax positions
Additions based on prior year tax positions
Reductions for prior year tax positions
Reductions for settlements
Reductions for lapse of statute of limitations
Balance at December 31
2010
(in millions)
$ 284
1
13
(21)
(38)
(11)
$ 228
2009
$ 449
3
7
(37)
(129)
(9)
$ 284
The 2010 reduction in unrecognized tax benefits was principally attributable to income tax settlements with the U.S.
federal and state jurisdictions and the 2009 reduction in unrecognized tax benefits was principally attributable to income tax
settlements with the U.S. federal jurisdiction. We file income tax returns in the U.S. federal jurisdiction and each state
jurisdiction which imposes an income tax. We also file income tax returns in a number of foreign jurisdictions. However, our
foreign income tax activity has been immaterial.
The Internal Revenue Service (IRS) is currently conducting an examination of our 2007 and 2008 consolidated
income tax returns. Settlement agreements were reached with the Appeals division of the IRS for examination issues in dispute
for years prior to 2007. The issues were immaterial to our consolidated financial position and results of operations.
Table of Contents SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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