Verizon Wireless 2010 Annual Report Download - page 70

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Notes to Consolidated Financial Statements continued
Unrecognized Tax Benefits
A reconciliation of the beginning and ending balance of unrecognized
tax benefits is as follows:
(dollars in millions)
2010 2009 2008
Balance at January 1, $ 3,400 $ 2,622 $ 2,883
Additions based on tax positions related
to the current year 231 288 251
Additions for tax positions of prior years 476 1,128 344
Reductions for tax positions of prior years (569) (477) (651)
Settlements (256) (27) (126)
Lapses of statutes of limitations (40) (134) (79)
Balance at December 31, $ 3,242 $ 3,400 $ 2,622
Included in the total unrecognized tax benefits at December 31, 2010,
2009 and 2008 is $2.1 billion, $2.1 billion and $1.6 billion, respectively,
that if recognized, would favorably affect the effective income tax rate.
We recognized the following net after tax benefits related to interest and
penalties in the provision for income taxes:
Years Ended December 31, (dollars in millions)
2010 $ 29
2009 14
2008 55
The after-tax accrual for the payment of interest and penalties in the bal-
ance sheets are as follows:
At December 31, (dollars in millions)
2010 $ 527
2009 552
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 juris-
dictions on numerous open tax positions. Significant tax examinations
and litigation are ongoing in Massachusetts, New York, Canada, Australia
and Italy for tax years as early as 2002. It is reasonably possible that the
amount of the 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 examinations close.
Deferred taxes arise because of differences in the book and tax bases of
certain assets and liabilities. Significant components of deferred taxes are
shown in the following table:
(dollars in millions)
At December 31, 2010 2009
Employee benefits $ 11,499 $ 13,204
Tax loss and credit carry forwards 3,907 2,786
Uncollectible accounts receivable 248 303
Other – assets 951 1,269
16,605 17,562
Valuation allowances (3,421) (2,942)
Deferred tax assets 13,184 14,620
Former MCI intercompany accounts receivable
basis difference 1,489 1,633
Depreciation 11,758 10,296
Leasing activity 1,980 2,081
Wireless joint venture including wireless licenses 19,514 18,249
Other – liabilities 1,152 1,012
Deferred tax liabilities 35,893 33,271
Net deferred tax liability $ 22,709 $ 18,651
At December 31, 2010, undistributed earnings of our foreign subsidiaries
indefinitely invested outside of the United States amounted to approxi-
mately $1.2 billion. We have not provided deferred taxes on these earnings
because we intend that they will remain indefinitely invested outside of
the United States. Determination of the amount of unrecognized deferred
taxes related to these undistributed earnings is not practical.
At December 31, 2010, we had net after tax loss and credit carry forwards
for income tax purposes of approximately $4.2 billion. Of these net after
tax loss and credit carry forwards, approximately $3.5 billion will expire
between 2011 and 2030 and approximately $0.7 billion may be carried
forward indefinitely. The amount of net after tax loss and credit carry
forwards reflected as a deferred tax asset above has been reduced by
approximately $0.6 billion at December 31, 2010 and 2009, due to federal
and state tax law limitations on utilization of net operating losses.
During 2010, the valuation allowance increased approximately $0.5 bil-
lion. The balance at December 31, 2010 and the 2010 activity is primarily
related to state and foreign tax losses and credit carry forwards.