Yahoo 2015 Annual Report Download - page 155

The remaining balances are recorded on the Company’s consolidated balance sheets as follows (in
thousands):
December 31,
2014 2015
Total unrecognized tax benefits balance $1,023,626 $1,067,109
Amounts netted against related deferred tax assets (53,500) (64,601)
Unrecognized tax benefits recorded on consolidated balance sheets $ 970,126 $1,002,508
Amounts classified as accrued expenses and other current liabilities $ 2,179 $ 12,586
Amounts classified as deferred and other long-term tax liabilities, net 967,947 989,922
Unrecognized tax benefits recorded on consolidated balance sheets $ 970,126 $1,002,508
The Company’s gross amount of unrecognized tax benefits as of December 31, 2015 increased by $43
million from the recorded balance as of December 31, 2014 primarily related to transfer prices among
entities in different tax jurisdictions. 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 2013, 2014 and
2015, interest and penalties recorded in the consolidated statements of operations were a charge of
$21 million (net of interest received of $4 million), $83 million and $7 million, respectively. The
amounts of accrued interest and penalties recorded on the consolidated balance sheets as of
December 31, 2014 and 2015 were approximately $159 million and $167 million, respectively.
On July 27, 2015, the United States Tax Court issued an opinion in Altera Corp. et al. v. Commissioner,
which invalidated the 2003 final Treasury rule that requires participants in qualified cost-sharing
arrangements to share stock-based compensation costs. Based on the decision of the Tax Court, the
Company could be entitled to a future income tax benefit by excluding stock-based compensation
costs from its cost sharing with affiliated entities for the period of time that the Company had the
cost-sharing structure in place. The IRS has until the first quarter of fiscal 2016 to appeal this Tax
Court decision. There is uncertainty related to the IRS response to the Tax Court opinion, the final
resolution of this issue, and the potential favorable benefits to the Company. The Company will
continue to monitor developments related to this opinion and the potential impact of those
developments on its current and prior fiscal years.
The Company is in various stages of examination and appeal in connection with its taxes both in the
U.S. and in foreign jurisdictions. Those audits generally span tax years 2005 through 2014. As of
December 31, 2015, the Company’s 2011 through 2013 U.S. federal income tax returns are currently
under examination. The Company has appealed 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, certain audits
in various jurisdictions are expected to be resolved in the foreseeable future. The Company believes
that it has adequately provided for any reasonably foreseeable adverse adjustment to its tax returns
and that any settlement will not have a material adverse effect on its consolidated financial position,
results of operations, or cash flows. It is reasonably possible that the Company’s unrecognized tax
benefits could be reduced by up to approximately $149 million in the next twelve months.
The Company may have additional tax liabilities in China related to the sale to Alibaba Group of
523 million Alibaba Group shares that took place during the year ended December 31, 2012 and
related to the sale of the 140 million Alibaba Group ADSs sold in the Alibaba Group IPO that took
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