Berkshire Hathaway 2012 Annual Report Download - page 53

Notes to Consolidated Financial Statements (Continued)
(15) Income taxes (Continued)
We have not established deferred income taxes with respect to undistributed earnings of certain foreign subsidiaries.
Earnings expected to remain reinvested indefinitely were approximately $7.9 billion as of December 31, 2012. Upon
distribution as dividends or otherwise, such amounts would be subject to taxation in the U.S. as well as foreign countries.
However, U.S. income tax liabilities would be offset, in whole or in part, by allowable tax credits deriving from income taxes
previously paid to foreign jurisdictions. Further, repatriation of all earnings of foreign subsidiaries would be impracticable to the
extent that such earnings represent capital needed to support normal business operations in those jurisdictions. As a result, we
currently believe that any incremental U.S. income tax liabilities arising from the repatriation of distributable earnings of
foreign subsidiaries would not be material.
Income tax expense reflected in our Consolidated Statements of Earnings for each of the three years ending December 31,
2012 is as follows (in millions).
2012 2011 2010
Federal ............................................................... $5,695 $3,474 $4,546
State ................................................................. 384 444 337
Foreign ............................................................... 845 650 724
$6,924 $4,568 $5,607
Current ............................................................... $4,711 $2,897 $3,668
Deferred .............................................................. 2,213 1,671 1,939
$6,924 $4,568 $5,607
Income tax expense is reconciled to hypothetical amounts computed at the U.S. federal statutory rate for each of the three
years ending December 31, 2012 in the table below (in millions).
2012 2011 2010
Earnings before income taxes ..................................................... $22,236 $15,314 $19,051
Hypothetical amounts applicable to above computed at the federal statutory rate ............. $ 7,783 $ 5,360 $ 6,668
Dividends received deduction and tax exempt interest .................................. (518) (497) (504)
State income taxes, less federal income tax benefit ..................................... 250 289 219
Foreign tax rate differences ....................................................... (280) (208) (154)
U.S. income tax credits .......................................................... (319) (241) (182)
BNSF holding gain .............................................................. — — (342)
Other differences, net ............................................................ 8 (135) (98)
$ 6,924 $ 4,568 $ 5,607
We file income tax returns in the United States and in state, local and foreign jurisdictions. We are under examination by
the taxing authorities in many of these jurisdictions. We have settled tax return liabilities with U.S. federal taxing authorities for
years before 2005. During 2012, Berkshire and the U.S. Internal Revenue Service (“IRS”) tentatively resolved all proposed
adjustments for the 2005 through 2009 tax years at the IRS Appeals level. In 2012, the IRS commenced auditing Berkshire’s
consolidated U.S. federal income tax returns for the 2010 and 2011 tax years. We are also under audit or subject to audit with
respect to income taxes in many state and foreign jurisdictions. It is reasonably possible that certain of our income tax
examinations will be settled within the next twelve months. We currently do not believe that the outcome of unresolved issues
or claims is likely to be material to our Consolidated Financial Statements.
At December 31, 2012 and 2011, net unrecognized tax benefits were $866 million and $928 million, respectively. Included
in the balance at December 31, 2012, are $616 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 recognition is
highly certain but for which there is uncertainty about the timing of such recognition. Because of the impact of deferred tax
accounting, other than interest and penalties, the difference in recognition 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, 2012, we do not
expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months.
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