APS 2013 Annual Report Download - page 107

Table of Contents
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2013, the IRS finalized the examination of tax returns for the years ended December 31, 2008 and 2009, and the
$137 million anticipated refund was reduced by approximately $4 million to reflect the outcome of this examination. On December 17, 2013, the Joint
Committee on Taxation approved the anticipated refund. Cash related to this refund was received in the first quarter of 2014.
On September 13, 2013, the U.S. Treasury Department released final income tax regulations on the deduction and capitalization of expenditures
related to tangible property. These final regulations apply to tax years beginning on or after January 1, 2014. Several of the provisions within the regulations
will require a tax accounting method change to be filed with the IRS, resulting in a cumulative effect adjustment. To account for the adoption of these
regulations, plant-related long-term deferred tax liabilities decreased by $84 million, with the offsetting decrease to current deferred income tax assets. Prior to
the issuance of these regulations, this $84 million would have been repaid over 20 years through lower tax depreciation deductions.
Net income associated with the Palo Verde sale leaseback VIEs is not subject to tax (see Note 19). As a result, there is no income tax expense
associated with the VIEs recorded on the Consolidated Statements of Income.
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):
2013 2012 2011
Total unrecognized tax benefits, January 1 $133,422 $ 136,005 $ 127,595
Additions for tax positions of the current year 3,516 5,167 10,915
Additions for tax positions of prior years 13,158 — —
Reductions for tax positions of prior years for:
Changes in judgment (108,099) (7,729)(1,555)
Settlements with taxing authorities — — (124)
Lapses of applicable statute of limitations —(21) (826)
Total unrecognized tax benefits, December 31 $41,997 $133,422 $ 136,005
Included in the balances of unrecognized tax benefits at December 31, 2013, 2012 and 2011 were approximately $10 million, $10 million and
$8 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, 2010 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 2010.
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
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