Yahoo 2010 Annual Report Download - page 90

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, 2010, U.S. income taxes
were not provided for on a cumulative total of $2.6 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 total amount of gross unrecognized tax benefits was $597 million as of December 31, 2010, of which up to
$437 million would affect the Company’s effective tax rate if realized. A reconciliation of the beginning and
ending amount of unrecognized tax benefits in 2009 and 2010 is as follows (in thousands):
2009 2010
Unrecognized tax benefits balance at January 1 ................................. $798,057 $ 893,475
Gross increase for tax positions of prior years .................................. 18,027 44,978
Gross decrease for tax positions of prior years .................................. (16,044) (370,363)
Gross increase for tax positions of current year ................................. 102,855 48,570
Gross decrease for tax positions of current year ................................. — —
Settlements .............................................................. (9,420) (19,293)
Lapse of statute of limitations ............................................... — (312)
Unrecognized tax benefits balance at December 31 .............................. $893,475 $ 597,055
The total unrecognized tax benefits as of December 31, 2009 and 2010 include approximately $420 million and
$193 million, respectively, of unrecognized tax benefits that have been netted against the related deferred tax
assets. The remaining balances are recorded on the Company’s consolidated balance sheets as follows (in
thousands):
December 31,
2009 2010
Total unrecognized tax benefits balance ...................................... $893,475 $ 597,055
Amounts netted against related deferred tax assets .............................. (419,782) (193,275)
Unrecognized tax benefits recorded on consolidated balance sheets ................. $473,693 $ 403,780
Amounts classified as accrued expenses and other current liabilities ................ $ 53,858 $ 111,997
Amounts classified as deferred and other long-term tax liabilities, net ............... 419,835 291,783
Unrecognized tax benefits recorded on consolidated balance sheets ................. $473,693 $ 403,780
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. During
2009 and 2010, interest and penalties recorded in the consolidated statements of income were $3 million and $4
million, respectively. The amounts of accrued interest and penalties recorded on the consolidated balance sheets
as of December 31, 2009 and 2010 were approximately $15 million and $16 million, respectively.
The Company’s gross amount of unrecognized tax benefits as of December 31, 2010 is $597 million, of which
$420 million is recorded on the consolidated balance sheets. The agreements reached in 2010 with the IRS
resulted in a reduction to the Company’s gross unrecognized tax benefits of $357 million. Of this $357 million
reduction in unrecognized tax benefits, $202 million resulted in an effective tax rate benefit. The reduction to the
gross unrecognized tax benefits has been partially offset by increases from current year tax positions. In total, the
gross unrecognized tax benefits as of December 31, 2010 decreased by $296 million from the recorded balance
as of December 31, 2009.
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