Verizon Wireless 2009 Annual Report Download - page 69

Notes to Consolidated Financial Statements continued
67
Deferred taxes arise because of differences in the book and tax bases of
certain assets and liabilities. Significant components of deferred tax are
shown in the following table:
(dollars in millions)
At December 31, 2009 2008
Employee benefits $ 13,204 $ 13,174
Tax loss and credit carry forwards 2,786 2,634
Uncollectible accounts receivable 303 341
Other – assets 1,269 953
17,562 17,102
Valuation allowances (2,942) (2,995)
Deferred tax assets 14,620 14,107
Former MCI intercompany accounts receivable
basis difference 1,633 1,818
Depreciation 10,416 8,157
Leasing activity 2,081 2,218
Wireless joint venture including wireless licenses 18,249 12,957
Other – liabilities 1,012 823
Deferred tax liabilities 33,391 25,973
Net deferred tax liability $ 18,771 $ 11,866
Employee benefits deferred tax assets include $9,161 million and $10,344
million at December 31, 2009 and 2008, respectively, recognized in accor-
dance with the accounting standard relating to an employer’s accounting
for defined benefit pension and other postretirement benefit plans (see
Note 12).
At December 31, 2009, undistributed earnings of our foreign subsidiaries
indefinitely invested outside of the United States amounted to approxi-
mately $1,100 million. We have not provided deferred taxes on these
earnings because we intend that they will remain indefinitely invested out-
side of the United States. Determination of the amount of unrecognized
deferred taxes related to these undistributed earnings is not practical.
At December 31, 2009, we had net tax loss and credit carry forwards (tax
effected) for income tax purposes of approximately $3,300 million. Of
these net tax loss and credit carry forwards (tax effected), approximately
$2,600 million will expire between 2010 and 2029 and approximately
$700 million may be carried forward indefinitely. The amount of net tax
loss and credit carry forwards (tax effected) reflected as a deferred tax
asset above has been reduced by approximately $639 million and $614
million at December 31, 2009 and 2008, respectively, due to federal and
state tax law limitations on utilization of net operating losses.
During 2009, the valuation allowance decreased $53 million. The balance
at December 31, 2009 is primarily related to state and foreign tax losses
and credit carry forwards. Beginning January 1, 2009, we adopted the
new accounting standard relating to business combinations. Due to the
adoption of this standard, the reversal of valuation allowances associated
with acquired losses recognized during 2009 was reflected in income
tax expense.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending balance of unrecognized
tax benefits is as follows:
(dollars in millions)
2009 2008 2007
Balance at January 1, $ 2,622 $ 2,883 $ 2,958
Additions based on tax positions related
to the current year 288 251 141
Additions for tax positions of prior years 1,128 344 291
Reductions for tax positions of prior years (477) (651) (420)
Settlements (27) (126) (11)
Lapses of statutes of limitations (134) (79) (76)
Balance at December 31, $ 3,400 $ 2,622 $ 2,883
Included in the total unrecognized tax benefits at December 31, 2009,
2008 and 2007 is $2,099 million, $1,631 million and $1,245 million,
respectively, that if recognized, would favorably affect the effective
income tax rate.
We recognize any interest and penalties accrued related to unrecognized
tax benefits in income tax expense. During 2009 and 2008, we recog-
nized a net after tax benefit in the income statement related to interest
and penalties of approximately $14 million and $55 million respectively.
During 2007, we recognized a net after tax expense in the income state-
ment related to interest and penalties of approximately $175 million. We
had approximately $552 million (after-tax) and $538 million (after-tax) for
the payment of interest and penalties accrued in the balance sheets at
December 31, 2009 and December 31, 2008, respectively.
The increase in unrecognized tax benefits during 2009 was primarily due
to the acquisition of Alltel, from the filing of a refund claim related to
non-U.S. income taxes, and increased unrecognized tax benefits related
to non-U.S. income tax audits, partially offset by the resolution of certain
U.S. income tax examinations.
Verizon and/or its subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various state, local and foreign jurisdictions. The Internal
Revenue Service (IRS) is currently examining the Company’s U.S. income
tax returns for the years 2004 through 2006. As a large taxpayer, we are
under continual audit by the IRS and multiple state and foreign jurisdic-
tions on numerous open tax positions. Significant foreign examinations
are ongoing in Canada, Australia and Italy for tax years as early as 2002.
It is reasonably possible that the amount of the remaining liability for
unrecognized tax benefits could change by a significant amount during
the next twelve-month period. An estimate of the range of the possible
change cannot be made until issues are further developed or examina-
tions close.