ADT 2008 Annual Report Download - page 227

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (Continued)
contesting certain of the proposed tax adjustments. Management has assessed the issues related to
these adjustments for recognition and measurement under FIN No. 48 and has recorded unrecognized
tax benefits in accordance with FIN No. 48. The ultimate resolution of these matters is uncertain and
could result in a material impact to the Company’s financial position, results of operations, cash flows
or the effective tax rate in future reporting periods.
In 2004, in connection with the IRS audit of the 1997 through 2000 years, the Company submitted
to the IRS proposed adjustments to certain prior period U.S. federal income tax returns resulting in a
reduction in the taxable income previously filed. During 2006, the IRS accepted substantially all of the
proposed adjustments, and the Company developed proposed amendments to U.S. federal income tax
returns for additional periods through 2002. On the basis of previously accepted amendments, the
Company has determined that these adjustments will more-likely-than-not be accepted and, accordingly,
has recorded them in the Consolidated Financial Statements. Such adjustments did not have a material
impact on the Company’s financial condition, results of operations or cash flows.
Additionally, during 2008 the Company completed proposed amendments to its U.S. federal
income tax returns for periods subsequent to 2002, which primarily reflect the roll forward through
2006 of the amendments for the periods 1997 to 2002. Such adjustments did not have a material impact
on the Company’s financial condition, results of operations or cash flows. While the final adjustments
cannot be determined until the income tax return amendment process and the IRS review is completed,
the Company believes that any resulting adjustments will not have a material impact on its financial
condition, results of operations or cash flows.
During the third quarter of 2007, the IRS concluded its field examination of certain of Tyco’s U.S.
federal income tax returns for the years 1997 through 2000 and issued Revenue Agents’ Reports
(‘‘RARs’’) which reflect the IRS’ determination of proposed tax adjustments for the periods under
audit. The RARs propose tax audit adjustments to certain of the Company’s previously filed tax return
positions. The Company agreed with the IRS on adjustments totaling $498 million, with an estimated
cash impact to the Company of $458 million, and during the third quarter of 2007, the Company paid
$458 million, of which $163 million related to the Company’s discontinued operations. The Company
appealed other proposed tax audit adjustments totaling approximately $1 billion relating to Tyco,
Covidien and Tyco Electronics, and, as Audit Managing Party as specified in the Tax Sharing
Agreement, the Company intends to vigorously defend its prior filed tax return positions.
During the second quarter of 2008, the IRS issued additional RARs asserting a withholding tax
liability of approximately $106 million associated with the prior proposed tax adjustments related to
Tyco, Covidien and Tyco Electronics for the 1997 to 2000 period. The withholding tax amount asserted
against Tyco is immaterial. During the first quarter of fiscal 2009, the Company reached an agreement
with the IRS appeals team to work towards timely resolution of all unagreed issues related to this time
period. The Company, as Audit Managing Party as specified in the Tax Sharing Agreement, intends to
vigorously defend its prior filed tax return positions and determined that no adjustment is required to
the Company’s guarantees and indemnifications liability recorded in conjunction with the Tax Sharing
Agreement as discussed in Note 14. Additionally, the IRS is auditing the prior tax returns of the
Company, which include legal entities of Tyco, Covidien and Tyco Electronics for the 2001 to 2004
period. The IRS has not issued any RARs for this period.
124 2008 Financials