AT&T Wireless 2010 Annual Report Download - page 82

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
80 AT&T Inc.
The IRS has completed field examinations of our 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 judgment to the
U.S. Court of Appeals for the Fifth Circuit (Court of Appeals).
In January 2011, the Court of Appeals affirmed the judgment
of the District Court. We are considering whether to petition
the U.S. Supreme Court for a writ of certiorari with regard to
this tax refund matter. We are engaged with the IRS Appeals
Division in resolving issues related to our 1999–2005 returns;
we are unable to estimate the impact the resolution of
these issues may have on our UTBs. The IRS began its
examination of our 2006–2008 income tax returns in 2009.
The components of income tax (benefit) expense are as
follows:
2010 2009 2008
Federal:
Current $ 307 $2,849 $ 1,158
Deferred – net (2,105) 2,149 (2,970)
(1,798) 4,998 (1,812)
State, local and foreign:
Current 141 1,193 (21)
Deferred – net 495 (100) (377)
636 1,093 (398)
Total $(1,162) $6,091 $(2,210)
A reconciliation of income tax expense (benefit) and the
amount computed by applying the statutory federal income
tax rate (35%) to income from continuing operations before
income taxes is as follows:
2010 2009 2008
Taxes computed at federal
statutory rate $ 6,383 $6,481 $(1,600)
Increases (decreases) in
income taxes resulting from:
State and local income taxes –
net of federal income
tax benefit 441 554 (229)
Healthcare Reform Legislation 917 — —
IRS Settlement – 2008
Wireless Restructuring (8,300) — —
Other – net (603) (944) (381)
Total $(1,162) $6,091 $(2,210)
Effective Tax Rate (6.4)% 32.9% 48.3%
in our financial statements is recorded on our consolidated
balance sheets as an UTB. We update our UTBs at each
financial statement date to reflect the impacts of audit
settlements and other resolution of audit issues, expiration of
statutes of limitation, developments in tax law and ongoing
discussions with taxing authorities. A reconciliation of the
change in our UTB balance from January 1 to December 31
for 2010 and 2009 is as follows:
Federal, State and Foreign Tax 2010 2009
Balance at beginning of year $ 5,969 $ 6,176
Increases for tax positions
related to the current year 324 980
Increases for tax positions
related to prior years 562 876
Decreases for tax positions
related to prior years (1,989) (1,982)
Lapse of statute of limitations (44) —
Settlements (462) (81)
Balance at end of year 4,360 5,969
Accrued interest and penalties 1,329 1,537
Gross unrecognized income
tax benefits 5,689 7,506
Less: Deferred federal and state
income tax benefits (817) (892)
Less: Tax attributable to timing
items included above (2,073) (2,540)
Total UTB that, if recognized, would
impact the effective income
tax rate as of the end of the year $ 2,799 $ 4,074
During 2010 and 2009, we made net deposits totaling $206
and $1,151 to several taxing jurisdictions. These deposits are
not included in the reconciliation above but reduce our UTBs
balance. Net of these deposits and deposits made in 2008 of
$191 and a $1,000 deposit made in 2007, our UTBs balance
at December 31, 2010, was $3,141, which was included in
“Other noncurrent liabilities” on our consolidated balance
sheets. Our UTBs balance at December 31, 2009, was $5,164,
of which $4,865 was included in “Other noncurrent liabilities”
and $299 was included in “Accrued taxes” on our consolidated
balance sheets.
We record interest and penalties related to federal, state
and foreign UTBs in income tax expense. Accrued interest
and penalties included in UTBs were $1,329 as of
December 31, 2010, and $1,537 as of December 31, 2009.
Interest and penalties included in our consolidated statements
of income were $(194) for 2010, $(216) for 2009, and $152
for 2008.
We file income tax returns in the U.S. federal jurisdiction and
various state, local and foreign jurisdictions. Our income tax
returns are regularly audited by the IRS as well as by state,
local and foreign taxing authorities.