3M 2012 Annual Report Download - page 78

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change in law resulted in a reduction of the value of the company's deferred tax asset related to the subsidy. This
reduction in value resulted in a one-time non-cash income tax charge to 3M's earnings in 2010 of approximately $84
million, or 12 cents per diluted share.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few
exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax
authorities for years before 2004.
The IRS completed its field examination of the Company’s U.S. federal income tax returns for the years 2005 through
2007 in the fourth quarter of 2009. The Company protested certain IRS positions within these tax years and entered into
the administrative appeals process with the IRS during the first quarter of 2010. During the first quarter of 2010, the IRS
completed its field examination of the Company’s U.S. federal income tax return for the 2008 year. The Company
protested certain IRS positions for 2008 and entered into the administrative appeals process with the IRS during the
second quarter of 2010. During the first quarter of 2011, the IRS completed its field examination of the Company’s U.S.
federal income tax return for the 2009 year. The Company protested certain IRS positions for 2009 and entered into the
administrative appeals process with the IRS during the second quarter of 2011. During the first quarter of 2012, the IRS
completed its field examination of the Company’s U.S. federal income tax return for the 2010 year. The Company
protested certain IRS positions for 2010 and entered into the administrative appeals process with the IRS during the
second quarter of 2012. In December 2012, the Company received a statutory notice of deficiency for the 2006 year. The
Company intends to file a petition in Tax Court in the first quarter of 2013.
Currently, the Company is under examination by the IRS for its U.S. federal income tax returns for the years 2011, 2012,
and 2013. It is anticipated that the IRS will complete its examination of the Company for 2011 by the end of the second
quarter of 2013, for 2012 by the end of the first quarter of 2014, and for 2013 by the end of the first quarter of 2015. As of
December 31, 2012, the IRS has not proposed any significant adjustments to the Company’s tax positions for which the
Company is not adequately reserved.
During the first quarter of 2010, the Company paid the agreed upon assessments for the 2005 tax year. During the
second quarter of 2010, the Company paid the agreed upon assessments for the 2008 tax year. During the second
quarter of 2011, the Company received a refund from the IRS for the 2004 tax year. During the first quarter of 2012, the
Company paid the agreed upon assessments for the 2010 tax year. Payments relating to other proposed assessments
arising from the 2005 through 2013 examinations may not be made until a final agreement is reached between the
Company and the IRS on such assessments or upon a final resolution resulting from the administrative appeals process
or judicial action. In addition to the U.S. federal examination, there is also limited audit activity in several U.S. state and
foreign jurisdictions.
3M anticipates changes to the Company’s uncertain tax positions due to the closing of various audit years mentioned
above. Currently, the Company is not able to reasonably estimate the amount by which the liability for unrecognized tax
benefits will increase or decrease during the next 12 months as a result of the ongoing income tax authority examinations.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows:
Federal, State and Foreign Tax
(Millions)
2012
2011
2010
Gross UTB Balance at January 1
$
594
$
622
$
618
Additions based on tax positions related to the current year
80
92
128
Additions for tax positions of prior years
114
69
142
Reductions for tax positions of prior years
(120)
(123)
(161)
Settlements
(50)
9
(51)
Reductions due to lapse of applicable statute of limitations
(90)
(75)
(54)
Gross UTB Balance at December 31
$
528
$
594
$
622
Net UTB impacting the effective tax rate at December 31
$
185
$
295
$
394
The total amount of UTB, if recognized, would affect the effective tax rate by $185 million as of December 31, 2012, $295
million as of December 31, 2011, and $394 million as of December 31, 2010. The ending net UTB results from adjusting
the gross balance for items such as Federal, State, and non-U.S. deferred items, interest and penalties, and deductible