APS 2012 Annual Report Download - page 127

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
102
The $70 million long-term income tax receivable on the Consolidated Balance Sheets represents
the anticipated refunds related to an APS tax accounting method change approved by the IRS in the
third quarter of 2009. This amount is classified as long-term, as there remains uncertainty regarding the
timing of this cash receipt. Further clarification of the timing is expected from the IRS within the next
twelve months.
Net income associated with the Palo Verde sale leaseback variable interest entities is not subject
to tax (see Note 20). As a result, there is no income tax expense associated with the VIEs recorded on
the Consolidated Statements of Income.
During the first quarter of 2010, the Company reached a settlement with the IRS with regard to
the examination of tax returns for the years ended December 31, 2005 through 2007. As a result of this
settlement, net uncertain tax positions decreased $62 million, including approximately $3 million 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):
2012
2011
2010
Total unrecognized tax benefits, January 1
$ 136,005
$ 127,595
$ 201,216
Additions for tax positions of the current
year
5,167
10,915
7,551
Reductions for tax positions of prior years
for:
Changes in judgment
(7,729)
(1,555)
(11,017)
Settlements with taxing authorities
--
(124)
(62,199)
Lapses of applicable statute of
limitations
(21)
(826)
(7,956)
Total unrecognized tax benefits,
December 31
$ 133,422 $ 136,005 $ 127,595
Included in the balances of unrecognized tax benefits at December 31, 2012, 2011 and 2010
were approximately $10 million, $8 million and $7 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 a few exceptions, we are no longer subject to state
income tax examinations by tax authorities for years before 2008.
It is reasonably possible that within the next twelve months the IRS will finalize the
examination of tax returns for the years ended December 31, 2008 and 2009. At this time, a reasonable
estimate of the range of possible change in the uncertain tax position cannot be made. However, we do
not expect the ultimate outcome of this examination to have a material adverse impact on our financial
position or results of operations.