Citrix 2009 Annual Report Download - page 60

Income Taxes
As of December 31, 2009, our net unrecognized tax benefits totaled approximately $46.2 million. At
December 31, 2009, there was $0.8 million for tax positions which would not affect the annual effective tax rate
and approximately $0.3 million of accrued interest on tax positions.
We and certain of our subsidiaries are subject to United States, or U.S. federal income taxes in the U.S., as
well as income taxes of multiple state and foreign jurisdictions. With few exceptions, we are no longer subject to
U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004.
During the third quarter of 2009, the IRS concluded its examination of our income tax returns for 2004 and
2005 and issued a final Revenue Agent’s Report, which we refer to as the RAR. We agreed with all of the
adjustments contained in the RAR, with the exception of the transfer pricing and consequential adjustments
relating to the intercompany transfer of certain intellectual property in earlier tax years. The RAR asserts income
tax deficiencies related to the transfer pricing and consequential adjustments of approximately $81.3 million for
tax years 2004 and 2005, excluding interest. In addition, the transfer pricing and consequential adjustments to our
2004 and 2005 tax years would impact our income tax liabilities in tax years subsequent to 2005. We disagree
with the adjustments and have filed a protest, which caused the matter to be referred to the Appeals Division of
the IRS. We are contesting the adjustments through the IRS appeals process and the courts, if necessary. There
can be no assurance, however, that this matter, or any future tax examinations involving similar assertions, will
be resolved in our favor, and an adverse outcome of this matter could have a material adverse effect on our
results of operations and financial condition. Regardless of whether this matter is resolved in our favor, this
matter could be expensive and time-consuming to defend.
During the fourth quarter of 2009, the IRS commenced its examination of our U.S. federal income tax
returns for the 2006 through 2008 tax years.
In the ordinary course of global business, there are transactions for which the ultimate tax outcome is
uncertain and judgment is required in determining the worldwide provision for income taxes. We provide for
income taxes on transactions based on our estimate of the probable liability. We adjust our provision as
appropriate for changes that impact our underlying judgments. Changes that impact provision estimates include
such items as jurisdictional interpretations on tax filing positions based on the results of tax audits and general
tax authority rulings. Due to the evolving nature of tax rules combined with the large number of jurisdictions in
which we operate, it is possible that our estimates of our tax liability and the realizability of our deferred tax
assets could change in the future, which may result in additional tax liabilities and adversely affect our results of
operations, financial condition and cash flows.
We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the
process of preparing our consolidated financial statements. At December 31, 2009, we had approximately
$101.2 million in deferred tax assets. The authoritative guidance requires a valuation allowance to reduce the
deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. We review deferred tax assets periodically for recoverability
and make estimates and judgments regarding the expected geographic sources of taxable income and gains from
investments, as well as tax planning strategies in assessing the need for a valuation allowance. At December 31,
2009, we determined that $8.7 million valuation allowance relating to deferred tax assets for net operating losses
from acquired companies and unrealized losses from temporary impairments on available-for- sale investments
was necessary. If the estimates and assumptions used in our determination change in the future, we could be
required to revise our estimates of the valuation allowances against our deferred tax assets and adjust our
provisions for additional income taxes.
We maintain certain operational and administrative processes in overseas subsidiaries and its foreign
earnings are taxed at lower foreign tax rates. We do not expect to remit earnings from our foreign subsidiaries.
52