Citibank 2011 Annual Report Download - page 200

178
The following is a roll-forward of the Company’s unrecognized tax benefits.
In millions of dollars 2011  
Total unrecognized tax benefits at January 1 $ 4,035    
.ETæAMOUNTæOFæINCREASESæFORæCURRENTæYEARSæTAXæPOSITIONS 193  
'ROSSæAMOUNTæOFæINCREASESæFORæPRIORæYEARSæTAXæPOSITIONS 251  
'ROSSæAMOUNTæOFæDECREASESæFORæPRIORæYEARSæTAXæPOSITIONS (507)  
!MOUNTSæOFæDECREASESæRELATINGæTOæSETTLEMENTS (11)  
2EDUCTIONSæDUEæTOæLAPSEæOFæSTATUTESæOFæLIMITATION (38)  
&OREIGNæEXCHANGEæACQUISITIONSæANDæDISPOSITIONS — 
Total unrecognized tax benefits at December 31 $ 3,923    
Total amount of unrecognized tax benefits at December 31, 2011, 2010
and 2009 that, if recognized, would affect the effective tax rate are $2.2
billion, $2.1 billion and $2.2 billion, respectively. The remainder of the
uncertain tax positions have offsetting amounts in other jurisdictions or are
temporary differences, except for $0.9 billion at December 31, 2011, which
would be booked directly to Retained earnings.
Interest and penalties (not included in “unrecognized tax benefits” above) are a component of the Provision for income taxes.
2011  
In millions of dollars Pretax Net of tax 0RETAX .ETæOFæTAX 0RETAX .ETæOFæTAX
4OTALæINTERESTæANDæPENALTIESæINæTHEæ#ONSOLIDATEDæ"ALANCEæ3HEETæATæ*ANUARYæ $348 $223      
4OTALæINTERESTæANDæPENALTIESæINæTHEæ#ONSOLIDATEDæ3TATEMENTæOFæ)NCOME 61 41    
4OTALæINTERESTæANDæPENALTIESæINæTHEæ#ONSOLIDATEDæ"ALANCEæ3HEETæATæ$ECEMBERææ 404 261   æ æ
æ )NCLUDESææMILLIONæFORæFOREIGNæPENALTIESæANDææMILLIONæFORæSTATEæPENALTIES
The Company is currently under audit by the Internal Revenue Service
and other major taxing jurisdictions around the world. It is thus reasonably
possible that significant changes in the gross balance of unrecognized tax
benefits may occur within the next 12 months, but the Company does not
expect such audits to result in amounts that would cause a significant
change to its effective tax rate, other than the following items.
The Company expects to conclude the IRS audit of its U.S. federal
consolidated income tax returns for the years 2006-2008 and may resolve
certain issues with IRS Appeals for the years 2003-2005 within the next
12 months. The gross uncertain tax positions at December 31, 2011 for
the items that may be resolved for 2003-2008 are as much as $1,510
million plus gross interest of $70 million. Because of the number of issues
remaining to be resolved, the potential tax benefit to continuing operations
could be anywhere in a range between $0 and $1,200 million. In addition,
the Company expects to conclude a New York City audit for 2006-2008 in
the first quarter of 2012 that will result in a reduction of approximately
$82 million in gross uncertain tax positions and a reduction in gross interest
of approximately $13 million and which could result in a tax benefit to
continuing operations of approximately $56 million.
The following are the major tax jurisdictions in which the Company and
its affiliates operate and the earliest tax year subject to examination:
Jurisdiction Tax year
5NITEDæ3TATES 
-EXICO 
.EWæ9ORKæ3TATEæANDæ#ITY 
5NITEDæ+INGDOM 
*APAN 
"RAZIL 
3INGAPORE 
(ONGæ+ONG 
)RELAND 
Foreign pretax earnings approximated $13.1 billion in 2011, $12.3 billion
in 2010 and $6.1 billion in 2009 (of which $0.2 billion profit, $0.1 billion
profit and $0.6 billion loss, respectively, are in discontinued operations). As
a U.S. corporation, Citigroup and its U.S. subsidiaries are currently subject
to U.S. taxation on all foreign pretax earnings earned by a foreign branch.
Pretax earnings of a foreign subsidiary or affiliate are subject to U.S. taxation
when effectively repatriated. The Company provides income taxes on the
undistributed earnings of non-U.S. subsidiaries except to the extent that such
earnings are indefinitely reinvested outside the United States. At December 31,
2011, $35.9 billion of accumulated undistributed earnings of non-U.S.
subsidiaries were indefinitely invested. At the existing U.S. federal income
tax rate, additional taxes (net of U.S. foreign tax credits) of $9.5 billion
would have to be provided if such earnings were remitted currently. The
current year’s effect on the income tax expense from continuing operations
is included in the “Foreign income tax rate differential” line in the
reconciliation of the federal statutory rate to the Company’s effective income
tax rate in the table above.
Income taxes are not provided for the Company’s “savings bank base year
bad debt reserves” that arose before 1988, because under current U.S. tax
rules, such taxes will become payable only to the extent such amounts are
distributed in excess of limits prescribed by federal law. At December 31, 2011,
the amount of the base year reserves totaled approximately $358 million
(subject to a tax of $125 million).