Verizon Wireless 2013 Annual Report Download - page 66

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Unrecognized Tax Benets
A reconciliation of the beginning and ending balance of unrecognized
tax benets is as follows:
(dollars in millions)
2013 2012 2011
Balance at January 1, $ 2,943 $ 3,078 $ 3,242
Additions based on tax positions related to
the current year 116 131 111
Additions for tax positions of prior years 250 92 456
Reductions for tax positions of prior years (801) (415) (644)
Settlements (210) 100 (56)
Lapses of statutes of limitations (168) (43) (31)
Balance at December 31, $ 2,130 $ 2,943 $ 3,078
Included in the total unrecognized tax benets at December 31, 2013,
2012 and 2011 is $1.4 billion, $2.1 billion and $2.2 billion, respectively,
that if recognized, would favorably aect the eective income tax rate.
We recognized the following net after-tax benets related to interest and
penalties in the provision for income taxes:
Years Ended December 31, (dollars in millions)
2013 $ 33
2012 82
2011 60
The after-tax accruals for the payment of interest and penalties in the
consolidated balance sheets are as follows:
At December 31, (dollars in millions)
2013 $ 274
2012 386
The decrease in unrecognized tax benets was primarily due to the res-
olution of issues with the Internal Revenue Services (IRS) involving tax
years 2004 through 2006, as well as the resolution of tax controversies in
Canada and Italy.
Verizon and/or its subsidiaries le income tax returns in the U.S. federal
jurisdiction, and various state, local and foreign jurisdictions. As a large
taxpayer, we are under audit by the IRS and multiple state and foreign
jurisdictions for various open tax years. The IRS is currently examining the
Company’s U.S. income tax returns for tax years 2007-2009 and Cellco
Partnership’s U.S. income tax returns for tax years 2010-2011. Signicant
tax examinations and litigation are ongoing in New York City for tax years
as early as 2000. The amount of the liability for unrecognized tax ben-
ets will change in the next twelve months due to the expiration of the
statute of limitations in various jurisdictions and it is reasonably possible
that various current tax examinations will conclude or require reevalua-
tions of the Company’s tax positions during this period. An estimate of
the range of the possible change cannot be made until these tax matters
are further developed or resolved.
Deferred taxes arise because of dierences in the book and tax bases
of certain assets and liabilities. Signicant components of deferred tax
assets and liabilities are as follows:
(dollars in millions)
At December 31, 2013 2012
Employee benets $ 10,242 $ 13,644
Tax loss and credit carry forwards 2,747 4,819
Uncollectible accounts receivable 213 206
Other – assets 959 1,050
14,161 19,719
Valuation allowances (1,596) (2,041)
Deferred tax assets 12,565 17,678
Former MCI intercompany accounts receivable basis
dierence 1,121 1,275
Depreciation 14,030 13,953
Leasing activity 997 1,208
Wireless joint venture including wireless licenses 23,032 22,171
Other – liabilities 1,470 1,320
Deferred tax liabilities 40,650 39,927
Net deferred tax liability $ 28,085 $ 22,249
At December 31, 2013, undistributed earnings of our foreign subsidiaries
indenitely invested outside the U.S. amounted to approximately $2.1
billion. The majority of Verizon's cash ow is generated from domestic
operations and we are not dependent on foreign cash or earnings to
meet our funding requirements, nor do we intend to repatriate these
undistributed foreign earnings to fund U.S. operations. Furthermore, a
portion of these undistributed earnings represent amounts that legally
must be kept in reserve in accordance with certain foreign jurisdictional
requirements and are unavailable for distribution or repatriation. As a
result, we have not provided U.S. deferred taxes on these undistributed
earnings because we intend that they will remain indenitely reinvested
outside of the U.S. and therefore unavailable for use in funding U.S. oper-
ations. Determination of the amount of unrecognized deferred taxes
related to these undistributed earnings is not practicable.
At December 31, 2013, we had net after-tax loss and credit carry forwards
for income tax purposes of approximately $2.7 billion. Of these net after-
tax loss and credit carry forwards, approximately $2.1 billion will expire
between 2014 and 2033 and approximately $0.6 billion may be carried
forward indenitely. The amount of net after-tax loss and credit carry
forwards reected as a deferred tax asset above has been reduced by
approximately $0.1 billion at December 31, 2012 due to federal and state
tax law limitations on utilization of net operating losses.
During 2013, the valuation allowance decreased approximately $0.4 bil-
lion. The balance of the valuation allowance at December 31, 2013 and
the 2013 activity is primarily related to state and foreign tax losses and
credit carry forwards.