Yahoo 2013 Annual Report Download - page 127

In 2012, the Company made a one-time distribution of foreign earnings resulting in an overall net benefit of $117
million. During 2013, the Company recorded an additional net benefit of $36 million related to this distribution.
As of December 31, 2013, the Company does not anticipate a repatriation of its undistributed foreign earnings of
approximately $2.6 billion. Those earnings are principally related to Yahoo Japan. If these earnings were to be
repatriated in the future, the Company may 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 $695 million as of December 31, 2013, of which up to
$466 million would affect the Company’s effective tax rate if realized. A reconciliation of the beginning and
ending amount of unrecognized tax benefits in 2012 and 2013 is as follows (in thousands):
2012 2013
Unrecognized tax benefits balance at January 1 .................................. $532,862 $727,367
Gross increase for tax positions of prior years ................................... 9,441 69,188
Gross decrease for tax positions of prior years ................................... (32,513) (40,298)
Gross increase for tax positions of current year .................................. 231,525 34,556
Settlements .............................................................. (10,520) (94,640)
Lapse of statute of limitations ................................................ (3,428) (888)
Unrecognized tax benefits balance at December 31 ............................... $727,367 $695,285
The remaining balances are recorded on the Company’s consolidated balance sheets as follows (in thousands):
December 31,
2012 2013
Total unrecognized tax benefits balance ........................................ $727,367 $695,285
Amounts netted against related deferred tax assets ................................ (83,635) (89,048)
Unrecognized tax benefits recorded on consolidated balance sheets .................. $643,732 $606,237
Amounts classified as accrued expenses and other current liabilities ................. $ 30,484 $ —
Amounts classified as deferred and other long-term tax liabilities, net ................ 613,248 606,237
Unrecognized tax benefits recorded on consolidated balance sheets .................. $643,732 $606,237
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
2011, 2012 and 2013, interest and penalties recorded in the consolidated statements of income were a credit of $2
million and a charge of $37 million and $21 million (net of interest received of $4 million), respectively. The
amounts of accrued interest and penalties recorded on the consolidated balance sheets as of December 31, 2012
and 2013 were approximately $51 million and $76 million, respectively.
In 2013, the Company settled the IRS income tax examination for the 2005 and 2006 returns resulting in a
benefit of approximately $54 million. In addition, the Company recorded a reduction of tax reserves of
approximately $24 million based on proposed adjustments to its intercompany transfer pricing methodology for
the 2007 and 2008 returns. As of December 31, 2013, the Company’s federal 2009 and 2010 income tax returns
are currently under the IRS examination. The Company’s 2005 through 2008 tax returns are also under various
stages of audit by the California Franchise Tax Board. While the California Franchise Tax Board has not reached
any conclusions on the 2007 and 2008 returns, the Company has protested the proposed California Franchise Tax
Board’s adjustments to the 2005 and 2006 returns. The Company is also in various stages of examination and
appeal in connection with its taxes in foreign jurisdictions, which generally span tax years 2005 through 2012.
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