AT&T Wireless 2012 Annual Report Download - page 79

AT&T Inc. | 77
A reconciliation of the change in our UTB balance from
January 1 to December 31 for 2012 and 2011 is as follows:
Federal, State and Foreign Tax 2012 2011
Balance at beginning of year $ 4,541 $ 4,360
Increases for tax positions
related to the current year 791 217
Increases for tax positions
related to prior years 991 848
Decreases for tax positions
related to prior years (1,426) (1,066)
Lapse of statute of limitations (29) —
Settlements (75) 182
Balance at end of year 4,793 4,541
Accrued interest and penalties 977 1,312
Gross unrecognized income tax benefits 5,770 5,853
Less: Deferred federal and state
income tax benefits (610) (797)
Less: Tax attributable to timing
items included above (2,448) (2,331)
Total UTB that, if recognized, would
impact the effective income tax
rate as of the end of the year $ 2,712 $ 2,725
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 $2,372 at December 31, 2012, and
$2,508 at December 31, 2011.
Accrued interest and penalties included in UTBs were $977 as
of December 31, 2012, and $1,312 as of December 31, 2011.
We record interest and penalties related to federal, state and
foreign UTBs in income tax expense. The net interest and
penalty expense (benefit) included in income tax expense was
$(74) for 2012, $(65) for 2011, and $(194) for 2010.
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
Internal Revenue Service (IRS) and other taxing authorities.
The IRS has completed field examinations of our tax returns
through 2008. All audit periods prior to 2003 are closed for
federal examination purposes. We are engaged with the IRS
Appeals Division in resolving issues related to our 2003
through 2008 returns; we are unable to estimate the impact
the resolution of these issues may have on our UTBs.
NOTE 10. INCOME TAXES
Significant components of our deferred tax liabilities (assets)
are as follows at December 31:
2012 2011
Depreciation and amortization $ 41,411 $ 39,367
Intangibles (nonamortizable) 1,874 1,897
Employee benefits (13,350) (14,950)
Net operating loss and other carryforwards (2,167) (1,502)
Other – net (1,199) (1,451)
Subtotal 26,569 23,361
Deferred tax assets valuation allowance 886 917
Net deferred tax liabilities $ 27,455 $ 24,278
Net long-term deferred tax liabilities $ 28,491 $ 25,748
Less: Net current deferred tax assets (1,036) (1,470)
Net deferred tax liabilities $ 27,455 $ 24,278
At December 31, 2012, we had combined net operating and
capital loss carryforwards (tax effected) for federal income tax
purposes of $780 and for state and foreign income tax
purposes of $956, expiring through 2031. Additionally, we
had state credit carryforwards of $431, expiring primarily
through 2032.
We recognize a valuation allowance if, based on the weight
of available evidence, it is more likely than not that some
portion, or all, of a deferred tax asset will not be realized.
Our valuation allowances at December 31, 2012 and 2011,
relate primarily to state net operating loss and state credit
carryforwards.
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 unrecognized tax benefit (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.