Verizon Wireless 2014 Annual Report Download - page 69

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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)
2014 2013 2012
Balance at January 1, $ 2,130 $ 2,943 $ 3,078
Additions based on tax positions related to
the current year 80 116 131
Additions for tax positions of prior years 627 250 92
Reductions for tax positions of prior years (278) (801) (415)
Settlements (239) (210) 100
Lapses of statutes of limitations (497) (168) (43)
Balance at December 31, $ 1,823 $ 2,130 $ 2,943
Included in the total unrecognized tax benets at December 31, 2014,
2013 and 2012 is $1.3 billion, $1.4 billion and $2.1 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)
2014 $ 92
2013 33
2012 82
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)
2014 $ 169
2013 274
The decrease in unrecognized tax benets was primarily due to the reso-
lution of issues with the Internal Revenue Service (IRS) involving tax years
2007 through 2009, and was partially oset by an increase in unrecog-
nized tax benets related to the Wireless Transaction. The uncertain tax
benets related to the Wireless Transaction concern pre-acquisition tax
controversies and are the subject of an indemnity from Vodafone for
which a corresponding indemnity asset has been established.
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 2010-2012 and Cellco
Partnership’s U.S. income tax returns for tax years 2012-2013. Signicant
tax controversies are ongoing in Massachusetts for tax years as early
as 2001. The amount of the liability for unrecognized tax bene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 reevaluations
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. The presentation of signicant components
of deferred tax assets and liabilities is updated to reect the Wireless
Transaction. Signicant components of deferred tax assets and liabilities
are as follows:
(dollars in millions)
At December 31, 2014 2013
Employee benets $ 13,350 $ 10,413
Tax loss and credit carry forwards 2,255 2,912
Other – assets 2,247 1,783
17,852 15,108
Valuation allowances (1,841) (1,685)
Deferred tax assets 16,011 13,423
Spectrum and other intangible amortization 28,283 18,280
Depreciation 23,423 18,913
Other – liabilities 5,754 4,315
Deferred tax liabilities 57,460 41,508
Net deferred tax liability $ 41,449 $ 28,085
At December 31, 2014, undistributed earnings of our foreign subsid-
iaries indefinitely invested outside the United States amounted to
approximately $1.3 billion. The majority of Verizon's cash ow is gener-
ated 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. opera-
tions. 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 United States and therefore unavail-
able for use in funding U.S. operations. Determination of the amount of
unrecognized deferred taxes related to these undistributed earnings is
not practicable.
At December 31, 2014, we had net after-tax loss and credit carry forwards
for income tax purposes of approximately $2.3 billion. Of these net after-
tax loss and credit carry forwards, approximately $1.8 billion will expire
between 2015 and 2034 and approximately $0.5 billion may be carried
forward indenitely.
During 2014, the valuation allowance increased approximately $0.2 bil-
lion. The balance of the valuation allowance at December 31, 2014 and
the 2014 activity is primarily related to state and foreign tax losses.