Symantec 2010 Annual Report Download - page 177

April 2, 2010, we are under examination by the IRS, regarding Veritas U.S. federal income taxes for the 2002
through 2005 tax years and Symantec U.S. federal income taxes for the fiscal years 2005 through 2008 tax years. In
addition, we are under examination by the California Franchise Tax Board for the Symantec California income
taxes for the 2004 through 2005 tax years. We are also under audit by the Indian income tax authorities for fiscal
years 2006 through 2007, respectively.
We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the
expected tolling of the statute of limitations in various taxing jurisdictions. Considering these facts, we believe there
is a reasonable possibility of significant changes to our total unrecognized tax benefits within the next twelve
months.
On May 27, 2009, the U.S. Court of Appeals for the Ninth Circuit overturned a 2005 U.S. Tax Court ruling in
Xilinx v. Commissioner, holding that stock-based compensation related to research and development (“R&D”) must
be shared by the participants of a R&D cost sharing arrangement. The Ninth Circuit held that related parties to such
an arrangement must share stock option costs, notwithstanding the U.S. Tax Court’s finding that unrelated parties in
such an arrangement would not share such costs. Symantec has a similar R&D cost sharing arrangement in place.
The Ninth Circuit’s reversal of the U.S. Tax Court’s decision changed our estimate of stock option related tax
benefits previously recognized under the authoritative guidance on income taxes. As a result of the Ninth Circuit’s
ruling, we increased our liability for unrecognized tax benefits, recording a tax expense of approximately $7 million
and a reduction of additional paid-in capital of approximately $30 million in the first quarter of fiscal 2010. On
January 13, 2010, the Ninth Circuit Court of Appeals withdrew its issued opinion. On March 22, 2010, the Ninth
Circuit Court of Appeals issued a revised decision affirming the decision of the Tax Court. The Ninth Circuit’s
revised decision agreed with the Tax Court’s finding that related companies are not required to share such costs. As a
result of the Ninth Circuit’s revised ruling, we released the liability established in the first quarter of fiscal 2010,
which resulted in a $7 million tax benefit and increase of additional paid-in capital of approximately $30 million in
the fourth quarter of fiscal 2010. For fiscal 2010, there was no net income tax expense impact.
On March 29, 2006, we received a Notice of Deficiency from the 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. 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, which decreased 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.
On December 10, 2009, the U.S. Tax Court issued its opinion, finding that our transfer pricing methodology, with
appropriate adjustments, was the best method for assessing the value of the transaction at issue between Veritas and its
offshore subsidiary. The Tax Court judge provided guidance as to how adjustments would be made to correct the
application of the method used by Veritas. We remeasured and decreased our liability for unrecognized tax benefits
accordingly, resulting in a $78.5 million tax benefit in the third quarter of fiscal 2010. Final computations as directed
by the Ruling are not complete and, accordingly, we may make further adjustments to our tax liability in the future.
The Tax Court ruling is subject to appeal. We have $110 million on deposit with the IRS pertaining to this matter.
On December 2, 2009, we received a Revenue Agent’s Report from the IRS for the Veritas 2002 through 2005
tax years assessing additional taxes due. We agree with $30 million of the tax assessment, excluding interest, but
will contest the other $80 million of tax assessed and all penalties. The unagreed issues concern transfer pricing
matters comparable to the one that was resolved in our favor in the Veritas v. Commissioner Tax Court decision. On
January 15, 2010, we filed a protest with the IRS in connection with the $80 million of tax assessed.
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
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SYMANTEC CORPORATION
Notes to Consolidated Financial Statements — (Continued)