Symantec 2008 Annual Report Download - page 189

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 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.
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 approximately $35 million, including interest. Based on the final
settlement, a tax benefit of $8 million is reflected in the September 2006 quarter.
We are as yet unable to confirm our eligibility to claim a lower tax rate on a distribution made from a Veritas
foreign subsidiary prior to the June 2005 acquisition. The distribution was intended to be made pursuant to the Jobs
Act, and therefore eligible for a 5.25% effective U.S. federal rate of tax, in lieu of the 35% statutory rate. We are
seeking resolution of this matter with the IRS. Because we were unable to confirm our eligibility for the lower tax
rate prior to filing the Veritas tax return in May 2006, we paid $130 million of additional U.S. taxes. Since this
payment relates to the taxability of foreign earnings that are otherwise the subject of the IRS assessment, this
additional payment reduced the amount of taxes payable accrued as part of the purchase accounting for pre-
acquisition contingent tax risks.
The accounting treatment related to pre-acquisition unrecognized tax benefits will change when FAS 141R
becomes effective, which will be in the first quarter of our fiscal year 2010. At such time, any changes to the
recognition or measurement of unrecognized tax benefits related to pre-acquisition periods will be recorded through
income tax expense, where currently the accounting treatment would require any adjustment to be recognized
through the purchase price as an increase or decrease to goodwill.
Note 18. Litigation
For a discussion of our pending tax litigation with the Internal Revenue Service relating to the 2000 and 2001
tax years of Veritas, see Note 17.
On July 7, 2004, a purported class action complaint entitled Paul Kuck, et al. v. Veritas Software Corporation,
et al. was filed in the United States District Court for the District of Delaware. The lawsuit alleges violations of
federal securities laws in connection with Veritas’ announcement on July 6, 2004 that it expected results of
operations for the fiscal quarter ended June 30, 2004 to fall below earlier estimates. The complaint generally seeks
an unspecified amount of damages. Subsequently, additional purported class action complaints have been filed in
Delaware federal court, and, on March 3, 2005, the Court entered an order consolidating these actions and
appointing lead plaintiffs and counsel. A consolidated amended complaint (“CAC”), was filed on May 27, 2005,
expanding the class period from April 23, 2004 through July 6, 2004. The CAC also named another officer as a
defendant and added allegations that Veritas and the named officers made false or misleading statements in press
releases and SEC filings regarding the company’s financial results, which allegedly contained revenue recognized
from contracts that were unsigned or lacked essential terms. The defendants to this matter filed a motion to dismiss
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SYMANTEC CORPORATION
Notes to Consolidated Financial Statements — (Continued)