APS 2015 Annual Report Download - page 113

Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net income associated with the Palo Verde sale leaseback VIEs is not subject to tax (see Note 18). As a result, there is no
income tax expense associated with the VIEs recorded on the Pinnacle West Consolidated and APS 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):
Pinnacle West Consolidated
APS Consolidated
2015
2014
2013
2015
2014
2013
Total unrecognized tax benefits, January 1 $ 44,775
$ 41,997
$ 133,422
$ 44,775
$ 41,997
$ 133,241
Additions for tax positions of the current year 2,175
4,309
3,516
2,175
4,309
3,516
Additions for tax positions of prior years —
751
13,158
—
751
13,158
Reductions for tax positions of prior years for:
Changes in judgment (10,244)
(2,282)
(108,099)
(10,244)
(2,282)
(107,918)
Settlements with taxing authorities —
—
—
—
—
—
Lapses of applicable statute of limitations (2,259)
—
—
(2,259)
—
—
Total unrecognized tax benefits, December 31 $ 34,447
$ 44,775
$ 41,997
$ 34,447
$ 44,775
$ 41,997
During the year ended December 31, 2013, Internal Revenue Service ("IRS") guidance was released which provided
clarification regarding an APS tax accounting method change approved by the IRS in the third quarter of 2009. As a result of this
guidance, uncertain tax positions decreased $67 million. Additionally, the IRS finalized the examination of tax returns for the years
ended December 31, 2008 and 2009, which further reduced uncertain tax positions by approximately $41 million. These reductions in
uncertain tax positions, materially offset by an increase in deferred tax liabilities, resulted in a cash refund that was received in the first
quarter of 2014.
Included in the balances of unrecognized tax benefits are the following tax positions that, if recognized, would decrease our
effective tax rate (dollars in thousands):
Pinnacle West Consolidated
APS Consolidated
2015
2014
2013
2015
2014
2013
Tax positions, that if recognized, would decrease our
effective tax rate $ 9,523
$ 11,207
$ 9,827
$ 9,523
$ 11,207
$ 9,827
As of the balance sheet date, the tax year ended December 31, 2012 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 2011.
We reflect interest and penalties, if any, on unrecognized tax benefits in the Pinnacle West Consolidated and APS Consolidated
Statements of Income as income tax expense. The amount of interest expense or benefit recognized related to unrecognized tax
benefits are as follows (dollars in thousands):
Pinnacle West Consolidated
APS Consolidated
2015
2014
2013
2015
2014
2013
Unrecognized tax benefit interest expense/(benefit)
recognized $ (161)
$ 752
$ (3,716)
$ (161)
$ 752
$ (3,716)
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