Capital One 2012 Annual Report Download - page 253

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of the change in unrecognized tax benefits from January 1, 2011 to December 31, 2012 is as
follows:
(Dollars in millions)
Gross
Unrecognized
Tax Benefits
Accrued
Interest and
Penalties
Gross Tax,
Interest and
Penalties
Balance as of January 1, 2011 ................................... $285 $65 $350
Additions for tax positions related to the current year ................ 0 0 0
Additions for tax positions related to prior years .................... 61 26 87
Reductions for tax positions related to prior years due to IRS and other
settlements ................................................ (133) (31) (164)
Additions for tax positions related to acquired entities in prior years,
offset to goodwill .......................................... 0 0 0
Other reductions for tax positions related to prior years ............... 0 0 0
Balance as of December 31, 2011 ................................ $ 213 $ 60 $ 273
Additions for tax positions related to the current year ................ 00 0
Additions for tax positions related to prior years .................... 51 9 60
Reductions for tax positions related to prior years due to IRS and other
settlements ................................................ (56) (15) (71)
Additions for tax positions related to acquired entities in prior years,
offset to goodwill .......................................... 00 0
Other reductions for tax positions related to prior years ............... 00 0
Balance as of December 31, 2012 ................................ $ 208 $ 54 $ 262
Portion of balance at December 31, 2012 that, if recognized, would
impact the effective income tax rate ............................ $ 97 $ 35 $ 132
We are subject to examination by the IRS and other tax authorities in certain countries and states in which we
have significant business operations. The tax years subject to examination vary by jurisdiction. During 2012, the
Company made a cash payment of $42 million to the IRS related to the completion of the examination of the
Company’s federal tax returns for the tax years 2007 and 2008, which was concluded in January 2012. The
Company appealed a portion of the IRS’s proposed adjustments for 2008. In October 2012, the IRS reversed its
position on the issue subject to appeal, resolving the appeal and resulting in a decrease in unrecognized tax
benefits in the amount of $15 million. The Company currently has tax refund claims pending with the IRS for the
tax years 2005 through 2008 that are under review by the IRS. The IRS began its examination of the Company’s
federal income tax returns for the years 2009 and 2010 in April 2012 and this examination is ongoing.
It is reasonably possible that further adjustments to the Company’s unrecognized tax benefits may be made
within twelve months of the reporting date as a result of the above-referenced pending matters. At this time, an
estimate of the potential change to the amount of unrecognized tax benefits cannot be made.
As of December 31, 2012, U.S. income taxes and foreign withholding taxes have not been provided on
approximately $1.0 billion of unremitted earnings of subsidiaries operating outside the U.S., in accordance with
the guidance for accounting for income taxes in special areas. These earnings are considered by management to
be invested indefinitely. Upon repatriation of these earnings, we could be subject to both U.S. income taxes
(subject to possible adjustment for foreign tax credits) and withholding taxes payable to various foreign
countries. Determination of the amount of unrecognized deferred U.S. income tax liability and foreign
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