AT&T Wireless 2008 Annual Report Download - page 68

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
66
| AT&T Annual Report 2008
change in our unrecognized tax benefits (UTB) balance from
January 1, 2008 to December 31, 2008, and January 1, 2007
to December 31, 2007 is as follows:
Federal, State and Foreign Tax 2008 2007
Balance at beginning of year $ 5,901 $ 4,895
Increases for tax positions related
to the current year 811 429
Increases for tax positions related
to prior years 715 1,324
Decreases for tax positions related
to prior years (1,237) (478)
Settlements — (269)
Balance at end of year 6,190 5,901
Accrued Interest and Penalties 1,802 1,678
Gross Unrecognized Income Tax Benefits 7,992 7,579
Less: Deferred Federal and State
Income Tax Benefits (998) (676)
Less: tax attributable to timing items
included above (3,371) (3,911)
Less: UTB included above that relate
to acquired entities that would
impact goodwill if recognized — (797)
Total UTB that, if recognized, would
impact the effective income tax
rate as of the end of the year $ 3,623 $ 2,195
During 2008 we made deposits totaling $191 to several taxing
jurisdictions and, in the fourth quarter of 2007, we made a
deposit of $1,000 related to the AT&T Inc. 2000 – 2002 IRS
examination cycle. These deposits are not included in the
reconciliation above but reduce our unrecognized tax benefits
balance. Net of these deposits, our unrecognized tax benefits
balance at December 31, 2008, was $6,801, of which $5,042
was included in “Other noncurrent liabilities” and $1,759 was
included in “Accrued taxes” on our consolidated balance sheets.
Net of the 2007 deposit, our unrecognized tax benefits balance
at December 31, 2007, was $6,579, of which $5,894 was
included in “Other noncurrent liabilities” and $685 was included
in “Accrued taxes” on our consolidated balance sheets.
A portion of our unrecognized tax benefits relates to
pre-acquisition uncertain tax positions of ATTC, BellSouth and
AT&T Mobility. After the effective date of FAS 141(R), adjustment
of these unrecognized tax benefits will be reflected in income
tax expense.
We record interest and penalties related to federal, state
and foreign unrecognized tax benefits in income tax expense.
Accrued interest and penalties included in unrecognized tax
benefits were $1,802 and $1,678 as of December 31, 2008
and 2007, respectively. Interest and penalties included in our
consolidated statements of income were $152 for 2008 and
$303 for both 2007 and 2006.
The Company and our subsidiaries file income tax returns
in the U.S. federal jurisdiction and various state and foreign
jurisdictions. Our income tax returns are regularly audited
and reviewed by the IRS as well as by state and foreign
taxing authorities.
The IRS has completed field examinations of AT&T’s tax
returns through 2002, and all audit periods prior to 1998 are
closed for federal purposes. We were unable to reach
agreement with the IRS regarding treatment of Universal
Service Fund receipts on our 1998 and 1999 tax returns and,
as a result, we have filed a refund suit in U.S. District Court.
The court proceeding is currently scheduled for mid-2009.
We are engaged with the IRS Appeals Division (Appeals) in
settling our 2000 – 2002 returns and may reach a resolution
of this examination cycle during the next 12 months. At this
time, we are not able to determine the impact that resolution
may have on our unrecognized tax benefits. The IRS has
indicated that in early 2009 they will issue their final Revenue
Agent’s Report (RAR), as a result of their completion of
examination procedures pertaining to our 2003 through
2005 income tax returns. It is expected that this RAR will
assess additional taxes related primarily to the timing of
certain deductions related to our network assets. We expect
to make a deposit in the $800 to $1,200 range to reduce
the accrual of interest while we continue to work with the
IRS to resolve any contested issues. The IRS plans to begin
their examination of our 2006 – 2007 income tax returns
in early 2009.
The IRS has completed the examination of all acquired
entity tax returns through 2003 (ATTC through 2005) and, with
the exception of BellSouth, all years through 2001 are closed.
In 2009, we expect the IRS to complete their examination of
the BellSouth and Mobility 2004 – 2005 income tax returns
and to begin their examination of the final pre-acquisition
period returns.
The components of income tax expense are as follows:
2008 2007 2006
Federal:
Current $1,174 $5,903 $3,344
Deferred – net 5,163 (413) (139)
Amortization of investment
tax credits (14) (31) (28)
6,323 5,459 3,177
State, local and foreign:
Current (13) 621 295
Deferred – net 726 173 53
713 794 348
Total $7,036 $6,253 $3,525