Yahoo 2011 Annual Report Download - page 97

The total amount of gross unrecognized tax benefits was $533 million as of December 31, 2011, of which up to
$427 million would affect the Company’s effective tax rate if realized. A reconciliation of the beginning and
ending amount of unrecognized tax benefits in 2010 and 2011 is as follows (in thousands):
2010 2011
Unrecognized tax benefits balance at January 1 ................................. $893,475 $ 597,055
Gross increase for tax positions of prior years .................................. 44,978 21,001
Gross decrease for tax positions of prior years ................................. (370,363) (111,597)
Gross increase for tax positions of current year ................................. 48,570 37,966
Settlements ............................................................. (19,293) (9,617)
Lapse of statute of limitations .............................................. (312) (1,946)
Unrecognized tax benefits balance at December 31 .............................. $597,055 $ 532,862
The total unrecognized tax benefits as of December 31, 2010 and 2011 include approximately $193 million and
$139 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,
2010 2011
Total unrecognized tax benefits balance ...................................... $597,055 $ 532,862
Amounts netted against related deferred tax assets .............................. (193,275) (139,258)
Unrecognized tax benefits recorded on consolidated balance sheets ................. $403,780 $ 393,604
Amounts classified as accrued expenses and other current liabilities ................ $111,997 $ —
Amounts classified as deferred and other long-term tax liabilities, net ............... 291,783 393,604
Unrecognized tax benefits recorded on consolidated balance sheets ................. $403,780 $ 393,604
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 2010 and
2011, interest and penalties recorded in the consolidated statements of income were an increase of $4 million and a
decrease of $2 million, respectively. The amounts of accrued interest and penalties recorded on the consolidated
balance sheets as of December 31, 2010 and 2011 were approximately $16 million and $14 million, respectively.
The Company files income tax returns in the U.S. federal jurisdiction and in many U.S. states and foreign
jurisdictions. The tax years 1995 to 2010 remain open to examination by the major taxing jurisdictions in which
the Company is subject to tax.
During the last quarter of 2011, the Company commenced discussions with the IRS Appeals Division to settle the
contested adjustments for certain intercompany transfer pricing matters from the 2005 and 2006 income tax
examination. While no agreement has been reached, the discussions are proceeding. If the matter is resolved on
the basis that is currently being discussed with the IRS, then the settlement will not cause the Company to have
tax exposure beyond what has already been provided. In addition, the Company’s 2007 and 2008 U.S. income tax
returns are still under IRS examination.
As of December 31, 2011, the Company was also under audit by the California Franchise Tax Board for its 2005
and 2006 tax returns. The Company believes its existing reserves for all tax matters are adequate.
The Company is in various stages of the examination and appeals process in connection with taxes in foreign
jurisdictions and it is difficult to determine when these examinations will be settled. It is reasonably possible that
over the next twelve-month period the Company may experience an increase or decrease in its unrecognized tax
benefits. It is not possible to determine either the magnitude or the range of any increase or decrease at this time.
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