Berkshire Hathaway 2009 Annual Report Download - page 49

Notes to Consolidated Financial Statements (Continued)
(16) Income taxes (Continued)
Charges for income taxes are reconciled to hypothetical amounts computed at the U.S. federal statutory rate in the table
shown below (in millions).
2009 2008 2007
Earnings before income taxes ...................................................... $11,552 $7,574 $20,161
Hypothetical amounts applicable to above computed at the federal statutory rate .............. $ 4,043 $2,651 $ 7,056
Tax-exempt interest income ........................................................ (33) (88) (33)
Dividends received deduction ...................................................... (479) (415) (306)
State income taxes, less federal income tax benefit ...................................... 81 162 152
Foreign tax rate differences ........................................................ (92) (59) (36)
Effect of income tax rate changes on deferred income taxes * ............................. — — (90)
Non-taxable exchange of investment ................................................. — (154) —
Other differences, net ............................................................. 18 (119) (149)
Total income taxes ............................................................... $ 3,538 $1,978 $ 6,594
*Relates to adjustments made to deferred income tax assets and liabilities in 2007 upon the enactment of reductions to
corporate income tax rates in the United Kingdom and Germany.
We file income tax returns in the U.S. federal jurisdiction and in many state, local and foreign jurisdictions. We are under
examination by the taxing authorities in many of these jurisdictions. With few exceptions, we have settled tax return liabilities
with U.S. federal, state, local, and foreign tax authorities for years before 1999. Berkshire and the U.S. Internal Revenue Service
(“IRS”) resolved all proposed adjustments for the 1999 through 2001 tax years at the IRS Appeals Division and are awaiting
Joint Committee on Taxation approval. The IRS has completed its examination of the consolidated U.S. federal income tax
returns for the 2002 through 2006 tax years and the proposed adjustments are currently being reviewed in the IRS appeals
process. The IRS is currently auditing our consolidated U.S. federal income tax returns for the 2007 and 2008 tax years. While it
is reasonably possible that certain of the income tax examinations will be settled within the next twelve months, we currently
believe that there are no jurisdictions in which the outcome of unresolved issues or claims is likely to be material to the
Consolidated Financial Statements.
At December 31, 2009 and 2008, net unrecognized tax benefits were $926 million and $803 million, respectively. Included
in the balance at December 31, 2009, are approximately $700 million of tax positions that, if recognized, would impact the
effective tax rate. The remaining balance in net unrecognized tax benefits principally relates to tax positions for which the
ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the
impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would
not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. As
of December 31, 2009, we do not expect any material changes to the estimated amount of unrecognized tax benefits in the next
twelve months.
(17) Dividend restrictions – Insurance subsidiaries
Payments of dividends by our insurance subsidiaries are restricted by insurance statutes and regulations. Without prior
regulatory approval, our principal insurance subsidiaries may declare up to approximately $7 billion as ordinary dividends
before the end of 2010.
Combined shareholders’ equity of U.S. based property/casualty insurance subsidiaries determined pursuant to statutory
accounting rules (Statutory Surplus as Regards Policyholders) was approximately $64 billion at December 31, 2009 and $51
billion at December 31, 2008. Statutory surplus differs from the corresponding amount determined on the basis of GAAP. The
major differences between statutory basis accounting and GAAP are that deferred charges reinsurance assumed, deferred policy
acquisition costs, unrealized gains and losses on investments in fixed maturity securities and related deferred income taxes are
recognized under GAAP but not for statutory reporting purposes. In addition, statutory accounting for goodwill of acquired
businesses requires amortization of goodwill over 10 years, whereas under GAAP, goodwill is not amortized and is subject to
periodic tests for impairment.
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