APS 2011 Annual Report Download - page 127

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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which decreased our effective tax rate. Additionally, the settlement resulted in the recognition of net
interest benefits of approximately $4 million through the effective tax rate.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits,
excluding interest and penalties, at the beginning and end of the year that are included in accrued taxes
and unrecognized tax benefits (dollars in thousands):
2011 2010 2009
Total unrecognized tax benefits, January 1 $ 127,595 $ 201,216 $ 63,318
Additions for tax positions of the current
year 10,915 7,551 44,094
Additions for tax positions of prior years -- -- 98,942
Reductions for tax positions of prior years
for:
Changes in judgment (1,555) (11,017) --
Settlements with taxing authorities (124) (62,199) (4,089)
Lapses of applicable statute of
limitations (826) (7,956) (1,049)
Total unrecognized tax benefits,
December 31 $ 136,005 $ 127,595 $ 201,216
Included in the balances of unrecognized tax benefits at December 31, 2011, 2010 and 2009
were approximately $8 million, $7 million and $16 million, respectively, of tax positions that, if
recognized, would decrease our effective tax rate.
As of the balance sheet date, the tax year ended December 31, 2008 and all subsequent tax
years remain subject to examination by the IRS. With few exceptions, we are no longer subject to state
income tax examinations by tax authorities for years prior to 2006. We do not anticipate that there will
be any significant increases or decreases in our unrecognized tax benefits within the next twelve
months.
We reflect interest and penalties, if any, on unrecognized tax benefits in the Consolidated
Statements of Income as income tax expense. The amount of interest recognized in the Consolidated
Statement of Income related to unrecognized tax benefits was a pre-tax expense of $3 million for 2011,
a pre-tax benefit of $2 million for 2010 and a pre-tax expense of $2 million for 2009.
The total amount of accrued liabilities for interest recognized in the Consolidated Balance
Sheets related to unrecognized tax benefits was $9 million as of December 31, 2011, $6 million as of
December 31, 2010 and $8 million as of December 31, 2009. To the extent that matters are settled
favorably, this amount could reverse and decrease our effective tax rate. Additionally, as of
December 31, 2011, we have recognized $4 million of interest income to be received on the
overpayment of income taxes for certain adjustments that we have filed, or will file, with the IRS.
The components of income tax expense are as follows (dollars in thousands):