Yahoo 2014 Annual Report Download - page 71

year ended December 31, 2013 reflects the benefit of both the 2012 and 2013 federal research and
development tax credits. On December 19, 2014, the Tax Increase Prevention Act of 2014 was
signed into law, extending this 2014 federal research and development credit. As such, the
provision for income taxes for the year ended December 31, 2014 reflects the benefit of the 2014
federal research and development tax credit.
• In 2012, in connection with a review of our cash position and anticipated cash needs for
investment in our core business, including potential acquisitions, capital expenditures and stock
repurchases, we made a one-time distribution of cash from certain of our consolidated foreign
subsidiaries resulting in an overall net benefit for the year ended December 31, 2012 of
approximately $117 million. The benefit is primarily due to excess foreign tax credits. Of the $117
million, $102 million is included above within “effect of non-U.S. operations.” In 2013, “effect of
non-U.S. operations” includes an additional benefit of $36 million due to more excess foreign tax
credits becoming available as certain tax matters were resolved with various tax authorities
during the year. In 2014, a detriment of $8 million was included in “effect of non-U.S. operations”
to account for the corresponding adjustments from the IRS on foreign earnings available at the
time of 2012 repatriation.
• In 2013, we settled the IRS income tax examination for the 2005 and 2006 returns resulting in a
benefit of approximately $54 million. In 2014, we settled the IRS income tax examination for the
2007 through 2010 returns resulting in a benefit of approximately $25 million.
• In 2014, YHK sold 140 million Alibaba Group ADSs in the IPO at an initial public offering price of
$68.00 per ADS, which resulted in an increase in our provision for income taxes for 2014.
As of December 31, 2014, we do not anticipate repatriating our undistributed foreign earnings of
approximately $2.9 billion. Those earnings are principally related to our equity investment in Yahoo
Japan Corporation (“Yahoo Japan”). If those earnings were to be repatriated in the future, we 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.
Our gross amount of unrecognized tax benefits as of December 31, 2014 was $1,024 million, of which
$970 million is recorded on our consolidated balance sheets. The gross unrecognized tax benefits as
of December 31, 2014 increased by $328 million from the recorded balance as of December 31, 2013
primarily related to tax reserves associated with the sale of the Alibaba Group ADSs and foreign tax
credits.
We are in various stages of examination and appeal in connection with our taxes both in the U.S. and
in foreign jurisdictions. Those audits generally span tax years 2005 through 2012. As of December 31,
2014, the IRS Appeals division has finalized our protest of the 2007 and 2008 audit results, and the
IRS exam team has finalized the examination of our 2009 and 2010 U.S. federal income tax returns.
We do not plan to appeal the results of the IRS examination of our 2009 and 2010 U.S. federal
income tax returns. We have protested the proposed California Franchise Tax Board’s adjustments to
the 2005 through 2008 returns, but no conclusions have been reached to date. While it is difficult to
determine when the examinations will be settled or their final outcomes, we believe that we have
adequately provided for any reasonably foreseeable adjustment and that any settlement will not have
a material adverse effect on our consolidated financial position, results of operations, or cash flows.
We estimate that we will pay taxes of approximately $3.3 billion in the three months ended March 31,
2015 related to YHK’s sale of Alibaba Group ADSs in the IPO on September 24, 2014. As of
December 31, 2014, we accrued deferred tax liabilities of $16.2 billion associated with the Alibaba
Group shares that we retained. Such deferred tax liabilities will be subject to periodic adjustments
due to changes in the fair value of the Alibaba Group shares.
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