Cigna 2008 Annual Report Download - page 146

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A reconciliation of the beginning to ending amount of unrecognized tax benefits is as follows:
(In millions) 2008 2007
Balance at January 1, $ 260 $ 245
Decrease due to prior year positions (119) (31)
Increase due to current year positions 34 51
Reduction related to settlements with taxing authorities (5) -
Reduction related to lapse of applicable statute
of limitations (6) (5)
Balance at December 31, $ 164 $ 260
Over the next 12 months, the Internal Revenue Service (IRS) is expected to complete its examination of the Company's 2005 and 2006
consolidated federal income tax returns. The Company has determined, subject to the resolution of certain disputed matters, it is
reasonably possible that the level of unrecognized tax benefits could decline significantly as a result of this IRS review. This decline
is not expected to exceed $38 million, of which $28 million would impact net income.
The IRS completed its examination of the Company’s 2003 and 2004 consolidated federal income tax returns in 2007, for which there
were two unresolved issues. These contested matters moved through the administrative appeals process during 2008. The first issue
has been tentatively resolved subject to pending IRS Commissioner approval; the second issue remains in dispute and will likely be
litigated. Due to the nature of the litigation process, the timing of the resolution of this matter is uncertain. In addition, the IRS is
scheduled to complete its examination of the Company’s 2005 and 2006 consolidated federal income tax returns early in 2009,
although it is anticipated there will be at least one unresolved issue that will proceed to the administrative appeals level and move
through that process during 2009.
The Company classifies net interest expense on uncertain tax positions and any applicable penalties as a component of income tax
expense, but excludes these amounts from the liability for uncertain tax positions. At January 1, 2008, the Company had $17 million
of accrued interest and accrued an additional $2 million of interest and penalties through 2008.
The IRS is expected to examine the Company’s 2007 consolidated federal income tax return though the timing of this review is
uncertain. The Company conducts business in numerous states and foreign jurisdictions, and may be engaged in multiple audit
proceedings at any given time. Generally, no further state or foreign audit activity for years prior to 2001 is expected.
Deferred income tax assets and liabilities as of December 31 are shown below.
(In millions) 2008 2007
Deferred tax assets
Employee and retiree benefit plans $ 921 $ 546
Investments, net 130 26
Other insurance and contractholder liabilities 454 267
Deferred gain on sale of business 78 89
Policy acquisition expenses 147 170
Loss carryforwards 111 125
Other accrued liabilities 110 88
Bad debt expense 22 21
Other 39 39
Deferred tax assets before valuation allowance 2,012 1,371
Valuation allowance for deferred tax assets (126) (150)
Deferred tax assets, net of valuation allowance 1,886 1,221
Deferred tax liabilities
Depreciation and amortization 238 202
Unrepatriated foreign income, net 135 116
Unrealized appreciation (depreciation) on investments and foreign currency translation (104) 109
Total deferred tax liabilities 269 427
Net deferred income tax assets $ 1,617 $ 794