Cardinal Health 2009 Annual Report Download - page 59

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Company’s effective tax rate. The Company includes the full amount of unrecognized tax benefits in deferred
income taxes and other liabilities in the consolidated balance sheets. A reconciliation of the beginning and ending
amounts of unrecognized tax benefits for fiscal 2009 and 2008 is as follows:
June 30,
(in millions) 2009 2008
Balance at beginning of fiscal year .............................. $762.9 $596.6
Additions for tax positions of the current year ..................... 64.5 83.3
Additions for tax positions of prior years ......................... 118.7 189.4
Reductions for tax positions of prior years ........................ (54.3) (75.6)
Settlements with tax authorities ................................ (37.8) (7.8)
Expiration of the statute of limitations ........................... (5.2) (23.0)
Balance at end of fiscal year ................................... $848.8 $762.9
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax
expense. As of June 30, 2009 and June 30, 2008, the Company had $247 million and $195 million, respectively,
accrued for the payment of interest and penalties. These balances are gross amounts before any tax benefits and
are included in deferred income taxes and other liabilities in the condensed consolidated balance sheets. For the
year ended June 30, 2009, the Company recognized $51 million of interest and penalties in the consolidated
statement of earnings.
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and
various foreign jurisdictions. With few exceptions, the Company is subject to audit by taxing authorities for fiscal
years ending June 30, 2001 through the current fiscal year.
The Internal Revenue Service (“IRS”) currently has ongoing audits of fiscal years 2001 through 2007.
During the three months ended December 31, 2007, the Company was notified that the IRS has transferred
jurisdiction over fiscal years 2001 and 2002 from the Office of Appeals back to the Examinations level to
reconsider previously-unadjusted specific issues. During the three months ended March 31, 2008, the Company
received Notices of Proposed Adjustment (“NPA’s”) from the IRS related to fiscal years 2001 through 2005
challenging deductions arising from the sale of trade receivables to a special purpose accounts receivable and
financing entity as described in more detail in Note 9. The amount of additional tax, excluding penalties and
interest, proposed by the IRS in these notices was $179 million The Company disagrees with the proposed
adjustments and intends to vigorously contest them. The Company anticipates that this transaction could be the
subject of proposed adjustments by the IRS in tax audits of fiscal years 2006 to present. The Company believes
that it is adequately reserved for the uncertain tax position relating to this arrangement; therefore, it has not
adjusted the amount of previously recorded unrecognized tax benefits related to this issue.
Subsequent to the fiscal year ended June 30, 2008, the Company received a Revenue Agent’s Report for tax
years 2003 through 2005, which included the NPA’s discussed above and new NPA’s related to the Company’s
transfer pricing arrangements between foreign and domestic subsidiaries and the transfer of intellectual property
among subsidiaries of an acquired entity prior to its acquisition by the Company. The amount of additional tax
proposed by the IRS in the new notices total $598 million, excluding penalties and interest. The Company
disagrees with these proposed adjustments and intends to vigorously contest them. The Company anticipates that
this transaction could be the subject of proposed adjustments by the IRS in tax audits of fiscal years 2006 to
present. The Company believes that it is adequately reserved for the uncertain tax position relating to this
arrangement; therefore, it has not adjusted the amount of previously recorded unrecognized tax benefits related to
this issue.
It is reasonably possible that there could be a change in the amount of unrecognized tax benefits within the
next 12 months due to activities of the IRS or other taxing authorities, including proposed assessments of
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