Yahoo 2009 Annual Report Download - page 99

Yahoo! Inc.
Notes to Consolidated Financial Statements—(Continued)
As of December 31, 2009, the Company’s federal and state net operating loss carryforwards for income tax purposes
were approximately $185 million and $113 million, respectively. If not utilized, the federal and state net operating loss
carryforwards will begin to expire in 2025. The Company’s federal and state research tax credit carryforwards for
income tax purposes are approximately $112 million and $172 million, respectively. If not utilized, the federal research
tax credit carryforwards will begin to expire in 2020. The state research tax credit carryforwards will not expire.
Federal and state net operating loss and tax credit carryovers that result from the exercise of employee stock options
were not recorded on the Company’s consolidated balance sheets. Federal and state net operating loss and tax credit
carryovers that result from the exercise of employee stock options are accounted for as a credit to additional
paid-in-capital if and when realized through a reduction in income taxes payable.
During 2008, the Company recorded a deferred tax liability of $276 million in connection with the non-cash gain
recorded related to the IPO of Alibaba.com. This temporary difference and the corresponding deferred tax
liability would be subject to reversal upon a taxable sale of the investment by the Company or upon the
repatriation of earnings to the Company by Alibaba Group.
The Company has a valuation allowance of approximately $63 million as of December 31, 2009 against certain
deferred income tax assets that are not more likely than not to be realized in future periods. In evaluating the
Company’s ability to realize 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, 2009 relates to foreign net
operating loss and credit carryforwards that will reduce the provision for income taxes if and when recognized.
The Company provides U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’
earnings are considered indefinitely reinvested outside the U.S. As of December 31, 2009, U.S. income taxes
were not provided for on a cumulative total of $2.0 billion of undistributed earnings for certain foreign
subsidiaries and a corporate joint venture. If these earnings were to be repatriated, the Company would be subject
to additional U.S. income taxes (subject to an adjustment for foreign tax credits). It is not practicable to
determine the income tax liability that might be incurred if these earnings were to be repatriated.
The Company adopted authoritative guidance on accounting for uncertainty in income taxes on January 1, 2007.
As a result of the implementation of these provisions, the Company recognized a $46 million increase to the
January 1, 2007 balance of retained earnings related to adjustments to certain unrecognized tax benefits. The total
amount of gross unrecognized tax benefits was $893 million as of December 31, 2009, of which up to $699
million would affect the Company’s effective tax rate if realized. A reconciliation of the beginning and ending
amount of unrecognized tax benefits in 2008 and 2009 is as follows (in thousands):
2008 2009
Unrecognized tax benefits balance at January 1 .................................. $685,672 $798,057
Gross increase for tax positions of prior years ................................... 70,474 18,027
Gross decrease for tax positions of prior years ................................... (15,065) (16,044)
Gross increase for tax positions of current year .................................. 58,667 102,855
Gross decrease for tax positions of current year .................................. — —
Settlements .............................................................. (1,691) (9,420)
Lapse of statute of limitations ................................................ — —
Unrecognized tax benefits balance at December 31 ............................... $798,057 $893,475
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