Yahoo 2015 Annual Report Download - page 67

(3) 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.
(4) In 2014, Yahoo! Hong Kong Holdings Limited (“YHK”) sold 140 million Alibaba Group ADSs in
the Alibaba Group 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.
(5) In 2015, our pre-tax loss included a goodwill impairment charge of $4,461 million, of which $213
million is tax deductible, while the rest is not deductible for income tax purposes. The provision
for income taxes for the year ended December 31, 2015 reflects the benefit from impairment of
the tax deductible goodwill.
As of December 31, 2015, we do not anticipate repatriating our undistributed foreign earnings of
approximately $3.3 billion. Those earnings are principally related to our equity method investment in
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.
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, we
could be entitled to an income tax benefit by excluding stock-based compensation costs from our
cost sharing with affiliated entities for the period of time that we had the cost-sharing structure in
place. The IRS has until the first quarter of 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 us. We will continue to monitor developments related to this
opinion and the potential impact of those developments on our current and prior fiscal years.
Our gross amount of unrecognized tax benefits as of December 31, 2015 was $1.1 billion, of which $1.0
billion is recorded on our consolidated balance sheets. The gross 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.
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 2014. As of December 31,
2015, our 2011 through 2013 U.S. federal income tax returns are currently under examination. We have
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. We believe that we have adequately provided for
any reasonably foreseeable adverse adjustment to our tax returns and that any settlement will not
have a material adverse effect on our consolidated financial position, results of operations, or cash
flows. It is reasonably possible that our unrecognized tax benefits could be reduced by up to
approximately $149 million in the next twelve months.
In the first quarter of 2015, we satisfied the $3.3 billion income tax liability related to the sale by YHK,
our wholly-owned subsidiary, of Alibaba Group ADSs in the Alibaba Group IPO on September 24,
2014. As of December 31, 2015, we accrued deferred tax liabilities of $12.6 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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