Yahoo 2007 Annual Report Download - page 94

The Company has a valuation allowance of approximately $66 million as of December 31, 2007 to reduce deferred
income tax assets to the amount that is more likely than not to be realized in future periods. In evaluating the
Company’s ability to recover its deferred income tax assets the Company considers all available positive and
negative evidence, including operating results, ongoing tax planning and forecasts of future taxable income on a
jurisdiction by jurisdiction basis. The valuation allowance as of December 31, 2007 relates to foreign net operating
loss and credit carryforwards and will reduce the provision for income taxes if and when recognized.
The Company provides United States income taxes on the earnings of foreign subsidiaries unless the subsidiaries’
earnings are considered indefinitely reinvested outside the United States. As of December 31, 2007, U.S. income
taxes were not provided for on a cumulative total of $1.0 billion of undistributed earnings for certain foreign
subsidiaries and a corporate joint venture. In prior years, substantially all of these earnings were considered
indefinitely reinvested except those earned in 2004 and 2005 in certain foreign jurisdictions for which approx-
imately $8 million of incremental United States income tax expense was provided in those years. In 2007, the
Company determined that earnings from those years are also indefinitely reinvested and reversed the incremental
United States income tax expense previously recorded. Consequently, all earnings of foreign subsidiaries and a
corporate joint venture are considered indefinitely reinvested in operations outside the United States. If these
earnings were to be repatriated, the Company would be subject to additional United States income taxes (subject to
an adjustment for foreign tax credits).
The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”) on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a
$46 million increase to the January 1, 2007 balance of retained earnings related to adjustments to certain
unrecognized tax benefits. At January 1, 2007, the Company had approximately $620 million in total unrecognized
tax benefits. At December 31, 2007, the Company had approximately $686 million in total unrecognized tax
benefits. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(In thousands)
Unrecognized tax benefits balance at January 1, 2007 ......................... $619,578
Gross increase for tax positions of prior years............................... 39,554
Gross decrease for tax positions of prior years .............................. (24,433)
Gross increase for tax positions of current year .............................. 50,973
Gross decrease for tax positions of current year ............................. —
Settlements ........................................................ —
Lapse of statute of limitations . . ........................................ —
Unrecognized tax benefits balance at December 31, 2007 ...................... $685,672
At December 31, 2007, the total unrecognized tax benefits of $686 million include approximately $443 million of
unrecognized tax benefits that have been netted against the related deferred tax assets. The remaining $243 million
is recorded within deferred and other long-term tax liabilities, net on the Company’s consolidated balance sheet as
of December 31, 2007.
The total unrecognized tax benefits of $686 million at December 31, 2007 included $508 million that, if recognized,
would reduce the effective income tax rate in future periods.
The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. To the
extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and
reflected as a reduction of the overall income tax provision in the period that such determination is made. The
amount of interest and penalties accrued upon the adoption of FIN 48 and at December 31, 2007 was immaterial.
The Company files income tax returns in the United States on a federal basis and in many U.S. state and foreign
jurisdictions. The tax years 1995 to 2007 remain open to examination by the major taxing jurisdictions in which the
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Yahoo! Inc.
Notes to Consolidated Financial Statements — (Continued)