Amtrak 2013 Annual Report Download - page 35

36 | Amtrak Annual Report 2013
valuation allowances for our deferred tax assets if it is more likely than not that some or all of the
deferred tax asset will not be realized. Judgment is required in estimating valuation allowances. The
determination of the amount of valuation allowance to be provided on recorded deferred tax assets
involves estimates regarding (1) the timing and amount of the reversal of taxable temporary
differences, (2) expected future taxable income, and (3) the impact of tax planning strategies, which
can also be impacted by changes to tax laws. Deferred tax liabilities primarily relate to fixed assets
for which we have no basis for tax purposes because the fixed assets were purchased with federal
grants, which are recorded within equity and are not included in taxable income.
We evaluate our potential exposures from tax positions taken that have or could be challenged by
taxing authorities in the evaluation. These potential exposures result because taxing authorities may
take positions that differ from those taken by management in the interpretation and application of
statutes, regulations, and rules. Management considers the possibility of alternative outcomes based
upon past experience, previous actions by taxing authorities (e.g., actions taken in other
jurisdictions), and advice from tax experts. We have evaluated income tax positions taken in prior
years and believe that all positions are more likely than not to be sustained in an audit.
Legal
As part of our operations, we are a party to various legal proceedings and administrative actions in
the normal course of business. An accrual for a loss contingency is established if information
available prior to issuance of our financial statements indicates that it is probable that an asset has
been impaired or a liability has been incurred at the date of the financial statements, and the amount
of loss can be reasonably estimated. If no accrual is made for a loss contingency because one or both
of these conditions are not met, or if an exposure to loss exists in excess of the amount accrued,
disclosure of the contingency is made when there is at least a reasonable possibility that a loss or an
additional loss may have been incurred.
We evaluate all exposures relating to legal liabilities on a monthly basis and adjust reserves when
appropriate under the guidance noted above. The amount of a particular reserve may be influenced
by factors that include official rulings, newly discovered or developed evidence, or changes in laws,
regulations and evidentiary standards.
Inflation
In preparing financial statements, U.S. generally accepted accounting principles require the use of
historical cost, which does not reflect the effects of inflation on the replacement cost of property.
Due to the capital intensive nature of our business, the replacement cost of these assets would be
significantly larger than the amounts reported under the historical cost basis.