AT&T Wireless 2009 Annual Report Download - page 81

AT&T 09 AR 79
judgment to the U.S. Court of Appeals for the Fifth Circuit.
We are engaged with the IRS Appeals Division (Appeals) in
settling our 2000 – 2002 returns and expect to reach a
resolution of most issues in early 2010. We do not expect the
resolution to have a material impact on our unrecognized tax
benefits. In early 2009, the IRS completed its field examination
of our 2003 – 2005 income tax returns and issued its final
Revenue Agent’s Report (RAR). This RAR assessed additional
taxes related primarily to the timing of certain deductions
related to our network assets. We made a deposit of $650 to
reduce the accrual of interest while we continue to work with
Appeals to resolve the contested issues. The IRS began its
examination of our 2006 – 2008 income tax returns in 2009.
During 2010, we expect to reach an accelerated resolution
with the IRS for depreciation and amortization deductions
claimed on our 2008 return related to a restructuring of our
wireless operations. At this time, we are unable to estimate
the impact of a resolution on our unrecognized tax benefits.
The IRS has completed the examination of all acquired
entity tax returns through 2003 (ATTC and AT&T Mobility
through 2005) and, with the exception of BellSouth, all years
through 2001 are closed. We expect the IRS to complete its
examination of the BellSouth 2004 – 2005 income tax returns
during 2010.
The components of income tax expense are as follows:
2009 2008 2007
Federal:
Current $2,852 $1,160 $5,872
Deferred – net 2,194 5,163 (413)
5,046 6,323 5,459
State, local and foreign:
Current 1,200 (13) 621
Deferred – net (90) 726 173
1,110 713 794
Total $6,156 $7,036 $6,253
A reconciliation of income tax expense and the amount
computed by applying the statutory federal income tax rate
(35%) to income before income taxes, income from
discontinued operations, extraordinary items and cumulative
effect of accounting changes is as follows:
2009 2008 2007
Taxes computed at federal
statutory rate $ 6,649 $7,057 $6,440
Increases (decreases) in
income taxes resulting from:
State and local income taxes –
net of federal income
tax benefit 559 497 549
Other – net (1,052) (518) (737)
Total $ 6,156 $7,036 $6,252
Effective Tax Rate 32.4% 34.9% 34.0%
Federal, State and Foreign Tax 2009 2008
Balance at beginning of year $ 6,190 $ 5,901
Increases for tax positions related
to the current year 982 811
Increases for tax positions related
to prior years 877 715
Decreases for tax positions related
to prior years (1,984) (1,237)
Settlements (81) —
Balance at end of year 5,984 6,190
Accrued interest and penalties 1,539 1,802
Gross unrecognized income tax benefits 7,523 7,992
Less: Deferred federal and state
income tax benefits (892) (998)
Less: Tax attributable to timing items
included above (2,542) (3,371)
Total UTB that, if recognized, would
impact the effective income tax rate
as of the end of the year $ 4,089 $ 3,623
During 2009 and 2008, we made net deposits totaling $1,151
and $191 to several taxing jurisdictions. These deposits are
not included in the reconciliation above but reduce our
unrecognized tax benefits balance. Net of these deposits
and a $1,000 deposit made in 2007, our unrecognized tax
benefits balance at December 31, 2009, was $5,181, of
which $4,882 was included in “Other noncurrent liabilities”
and $299 was included in “Accrued taxes” on our consolidated
balance sheets. 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.
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 $1,539 as of December 31, 2009, and $1,802
as of December 31, 2008. Interest and penalties included in
our consolidated statements of income were $(215) for 2009,
$152 for 2008, and $303 for 2007.
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 2005, 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 filed a refund suit in U.S. District Court
(District Court). In July 2009, the District Court granted the
Government’s motion for summary judgment and entered
final judgment for the Government. We appealed the final