Symantec 2008 Annual Report Download - page 130

in this annual report. An additional valuation allowance against net deferred tax assets may be necessary if it is more
likely than not that all or a portion of the net deferred tax assets will not be realized. We will assess the need for an
additional valuation allowance on a quarterly basis. Of the $38 million total valuation allowance provided against
our deferred tax assets, approximately $30 million is attributable to acquisition-related assets, the benefit of which
will reduce goodwill when and if realized. The valuation allowance decreased by $22 million in fiscal 2008;
$19 million was reclassified as FIN 48 reserves, $3 million was attributable to acquisition-related assets.
American Jobs Creation Act of 2004 — Repatriation of foreign earnings
In the March 2005 quarter, we repatriated $500 million from certain of our foreign subsidiaries that qualified
for the 85% dividends received deduction under the provisions of the American Jobs Creation Act of 2004, or the
Jobs Act, enacted in October 2004. In May 2005, clarifying language was issued by the U.S. Department of
Treasury and the IRS with respect to the treatment of foreign taxes paid on the earnings repatriated under the Jobs
Act and in September 2005, additional clarifying language was issued regarding the treatment of certain deductions
attributable to the earnings repatriation. As a result of this clarifying language, we reduced the tax expense
attributable to the repatriation by approximately $21 million in fiscal 2006.
Other tax matters
On March 29, 2006, we received a Notice of Deficiency from the IRS claiming that we owe additional taxes,
plus interest and penalties, for the 2000 and 2001 tax years based on an audit of Veritas. The incremental tax liability
asserted by the IRS was $867 million, excluding penalties and interest. On June 26, 2006, we filed a petition with the
U.S. Tax Court protesting the IRS claim for such additional taxes. On August 30, 2006, the IRS answered our
petition and this issue has been docketed for trial in U.S. Tax Court and is scheduled to begin on June 30, 2008. In
the March 2007 quarter, we agreed to pay $7 million out of $35 million originally assessed by the IRS in connection
with several of the lesser issues covered in the assessment. The IRS has also agreed to waive the assessment of
penalties. In a Motion to Amend filed March 20, 2008, the IRS moved to change its position on the remaining issue
in the case. If allowed, the IRS’ new position would decrease the incremental tax liability for the remaining issue to
approximately $545 million, excluding interest.
We strongly believe the IRS’ position with regard to this matter is inconsistent with applicable tax laws and
existing Treasury regulations, and that our previously reported income tax provision for the years in question is
appropriate. No payments will be made on the assessment until the issue is definitively resolved. If, upon resolution,
we are required to pay an amount in excess of our provision for this matter, the incremental amounts due would be
accounted for principally as additions to the cost of the Veritas purchase price. Any incremental interest accrued
subsequent to the date of the Veritas acquisition would be recorded as an expense in the period the matter is
resolved.
In the fourth quarter of fiscal 2006, we made $90 million of tax-related adjustments to the purchase accounting
for Veritas, consisting of $120 million of additional pre-acquisition tax reserve-related adjustments, partially offset
by a $30 million reduction in other pre-acquisition taxes payable. While we strongly disagree with the IRS over both
its transfer pricing methodologies and the amount of the assessment, we have established additional tax reserves for
all Veritas pre-acquisition years to account for both contingent tax and interest risk.
On March 30, 2006, we received notices of proposed adjustment from the IRS with regard to an unrelated audit
of Symantec for fiscal 2003 and 2004. The IRS claimed that we owed an incremental tax liability with regard to this
audit of $110 million, excluding penalties and interest. The incremental tax liability primarily relates to transfer
pricing matters between Symantec and a foreign subsidiary. On September 5, 2006, we executed a closing
agreement with the IRS with respect to the audit of Symantec’s fiscal 2003 and 2004 federal income tax returns. The
closing agreement represents the final assessment by the IRS of additional tax for these fiscal years of approx-
imately $35 million, including interest. Based on the final settlement, a tax benefit of $8 million was recognized.
In the fourth quarter of fiscal 2006, we increased our tax reserves by an additional $64 million in connection
with all open Symantec tax years (fiscal 2003 to 2006). Since these reserves relate to licensing arising from acquired
technology, the additional accruals are primarily offset by deferred taxes.
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