Berkshire Hathaway 2013 Annual Report Download - page 55

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Notes to Consolidated Financial Statements (Continued)
(16) Income taxes (Continued)
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, 2013 in the table below (in millions).
2013 2012 2011
Earnings before income taxes ..................................................... $28,796 $22,236 $15,314
Hypothetical amounts applicable to above computed at the U.S. federal statutory rate ......... $10,079 $ 7,783 $ 5,360
Dividends received deduction and tax exempt interest .................................. (514) (518) (497)
State income taxes, less U.S. federal income tax benefit ................................. 168 250 289
Foreign tax rate differences ....................................................... (256) (280) (208)
U.S. income tax credits .......................................................... (457) (319) (241)
Other differences, net ............................................................ (69) 8 (135)
$ 8,951 $ 6,924 $ 4,568
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. The U.S. Internal Revenue Service (“IRS”) has completed the exams of the 2005 though 2009 tax years.
Berkshire and the IRS have informally resolved all proposed adjustments in connection with these years with the IRS Appeals
division and expect formal settlements within the next twelve months. The IRS continues to audit 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, 2013 and 2012, net unrecognized tax benefits were $692 million and $866 million, respectively. Included
in the balance at December 31, 2013, are $560 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, 2013, 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 $13 billion as ordinary dividends
before the end of 2014.
Combined shareholders’ equity of U.S. based property/casualty insurance subsidiaries determined pursuant to statutory
accounting rules (Statutory Surplus as Regards Policyholders) was approximately $129 billion at December 31, 2013 and
$106 billion at December 31, 2012. Statutory surplus differs from the corresponding amount determined on the basis of GAAP
due to differences in accounting for certain assets and liabilities. For instance, deferred charges reinsurance assumed, deferred
policy acquisition costs, certain unrealized gains and losses on investments in fixed maturity securities and related deferred
income taxes are recognized for GAAP but not for statutory reporting purposes. In addition, under statutory reporting, goodwill
is amortized over 10 years, whereas under GAAP, goodwill is not amortized and is subject to periodic tests for impairment.
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