Berkshire Hathaway 2014 Annual Report Download - page 75

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, 2014 in the table below (in millions).
2014 2013 2012
Earnings before income taxes ..................................................... $28,105 $28,796 $22,236
Hypothetical amounts applicable to above computed at the U.S. federal statutory rate ......... $ 9,837 $10,079 $ 7,783
Dividends received deduction and tax exempt interest .................................. (820) (514) (518)
State income taxes, less U.S. federal income tax benefit ................................. 364 168 250
Foreign tax rate differences ....................................................... (252) (256) (280)
U.S. income tax credits .......................................................... (333) (457) (319)
Non-taxable exchange of investments ............................................... (679) — —
Other differences, net ............................................................ (182) (69) 8
$ 7,935 $ 8,951 $ 6,924
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 we 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, 2014 and 2013, net unrecognized tax benefits were $645 million and $692 million, respectively. Included
in the balance at December 31, 2014, were $505 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 where the ultimate recognition is
highly certain but there is uncertainty about the timing of such recognition. Because of the impact of deferred tax accounting,
the differences in recognition periods 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, 2014, 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 $17 billion as ordinary dividends
during 2015.
Combined shareholders’ equity of U.S. based insurance subsidiaries determined pursuant to statutory accounting rules
(Surplus as Regards Policyholders) was approximately $129 billion at December 31, 2014 and 2013. 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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