AT&T Wireless 2011 Annual Report Download - page 78

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
76 AT&T Inc.
We file income tax returns in the U.S. federal jurisdiction and
various state, local and foreign jurisdictions. As a large
taxpayer, our income tax returns are regularly audited by the
IRS and other taxing authorities. The IRS has completed field
examinations of our tax returns through 2005 and expects to
complete the field examination of our 2006 through 2008
returns during 2012. All audit periods prior to 2000 are closed
for federal purposes. We are engaged with the IRS Appeals
Division in resolving issues related to our 2000 through 2005
returns; we are unable to estimate the impact the resolution
of these issues may have on our UTBs. In October, the U.S.
Supreme Court denied our request to review a lower court
decision denying our refund suit regarding the tax treatment
of Universal Service Fund receipts. The Supreme Court action
had no impact on our financial statements.
The components of income tax (benefit) expense are as
follows:
2011 2010 2009
Federal:
Current $ (420) $ 307 $2,849
Deferred – net 2,555 (2,105) 2,149
2,135 (1,798) 4,998
State, local and foreign:
Current 23 141 1,193
Deferred – net 374 495 (100)
397 636 1,093
Total $2,532 $(1,162) $6,091
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:
2011 2010 2009
Taxes computed at federal
statutory rate $2,351 $ 6,383 $6,481
Increases (decreases) in
income taxes resulting from:
State and local income taxes –
net of federal income
tax benefit 210 441 554
Goodwill Impairment 961 — —
Healthcare Reform Legislation — 917 —
IRS Settlement – 2008
Wireless Restructuring — (8,300) —
Other – net (990) (603) (944)
Total $2,532 $(1,162) $6,091
Effective Tax Rate 37.7% (6.4)% 32.9%
We recognize the financial statement effects of a tax return
position when it is more likely than not, based on the
technical merits, that the position will ultimately be sustained.
For tax positions that meet this recognition threshold, we
apply our judgment, taking into account applicable tax laws
and our experience in managing tax audits and relevant GAAP,
to determine the amount of tax benefits to recognize in our
financial statements. For each position, the difference
between the benefit realized on our tax return and the benefit
reflected 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 2011 and 2010 is as follows:
Federal, State and Foreign Tax 2011 2010
Balance at beginning of year $ 4,360 $ 5,969
Increases for tax positions
related to the current year 217 324
Increases for tax positions
related to prior years 848 562
Decreases for tax positions
related to prior years (1,066) (1,989)
Lapse of statute of limitations — (44)
Settlements 182 (462)
Balance at end of year 4,541 4,360
Accrued interest and penalties 1,312 1,329
Gross unrecognized income
tax benefits 5,853 5,689
Less: Deferred federal and state
income tax benefits (797) (817)
Less: Tax attributable to timing
items included above (2,331) (2,073)
Total UTB that, if recognized, would
impact the effective income tax
rate as of the end of the year $ 2,725 $ 2,799
Periodically we make deposits to taxing jurisdictions which
reduce our UTB balance but are not included in the
reconciliation above. The amount of deposits that reduced
our UTB balance was $2,508 at December 31, 2011, and
$2,548 at December 31, 2010.
We record interest and penalties related to federal, state and
foreign UTBs in income tax expense. Accrued interest and
penalties included in UTBs were $1,312 as of December 31, 2011,
and $1,329 as of December 31, 2010. Interest and penalties
included in our consolidated statements of income were $(65)
for 2011, $(194) for 2010, and $(216) for 2009.