Symantec 2009 Annual Report Download - page 106

forth in this annual report. We considered the following as positive evidence: the vast majority of the goodwill
impairment is not deductible for tax purposes and thus will not result in tax losses; we have a strong, consistent
taxpaying history; we have substantial U.S. federal income tax carryback potential; and we have substantial
amounts of scheduled future reversals of taxable temporary differences from our deferred tax liabilities. We have
concluded that this positive evidence outweighs the negative evidence and, thus, that the deferred tax assets as of
April 3, 2009 of $702 million, after application of the valuation allowances, are realizable on a “more likely than
not” basis.
Other tax matters
On March 29, 2006, we received a Notice of Deficiency from the Internal Revenue Service (“IRS”) claiming
that we owe $867 million of additional taxes, excluding interest and penalties, for the 2000 and 2001 tax years based
on an audit of Veritas. On June 26, 2006, we filed a petition with the U.S. Tax Court protesting the IRS claim for
such additional taxes. 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 agreed to waive the
assessment of penalties. During July 2008, we completed the trial phase of the Tax Court case, which dealt with the
remaining issue covered in the assessment. At trial, the IRS changed its position with respect to this remaining issue,
decreasing the remaining amount at issue from $832 million to $545 million, excluding interest. We filed our post-
trial briefs in October 2008 and rebuttal briefs in November 2008 with the U.S. Tax Court.
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. If, upon resolution, the final assessment differs from our tax provision the adjustment, including
interest, would be accounted for through income tax expense in the period the matter is resolved, with the
application of SFAS No. 141(Revised 2007), Business Combinations (“SFAS No. 141(R)”) effective in the first
quarter of our fiscal year 2010.
On March 30, 2006, we received notices of proposed adjustments 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 July 2008, we reached an agreement with the IRS concerning our eligibility to claim a lower tax rate on a
distribution made from a Veritas foreign subsidiary prior to the July 2005 acquisition. The distribution was intended
to be made pursuant to the American Jobs Creation Act of 2004, and therefore eligible for a 5.25% effective
U.S. federal rate of tax, in lieu of the 35% statutory rate. The final impact of this agreement is not yet known since
this relates to the taxability of earnings that are otherwise the subject of the tax years 2000-2001 transfer pricing
dispute which in turn is being addressed in the U.S. Tax Court. To the extent that we owe taxes as a result of the
transfer pricing dispute, we anticipate that the incremental tax due from this negotiated agreement will decrease. We
currently estimate that the most probable outcome from this negotiated agreement will be $13 million or less, for
which an accrual has already been made. We made a payment of $130 million to the IRS for this matter in May
2006. We have applied $110 million of this payment as a deposit on the outstanding transfer pricing matter for the
tax years 2000-2001.
In connection with the note hedge transactions discussed in Note 8 of the Notes to Consolidated Financial
Statements in this annual report, we established a deferred tax asset of approximately $232 million to account for
the book-tax basis difference in the convertible notes resulting from note hedge transactions. The establishment of
the deferred tax asset has been accounted for as an increase to additional paid-in capital. As a result of the adoption
of FSPAPB No. 14-1 in the June 2009 quarter, book and tax basis in the convertible notes will be comparable, and as
a result, this deferred tax asset will be adjusted through additional paid-in capital, as part of the adoption.
The Company adopted the provisions of FASB FIN 48, Accounting for Uncertainty in Income Taxes, effective
March 31, 2007. FIN 48 addresses the accounting for and disclosure of uncertainty in income tax positions, by
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