Costco 2012 Annual Report Download - page 70

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A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2012 and
2011 is as follows:
2012 2011
Gross unrecognized tax benefit at beginning of year ................. $106 $ 83
Gross increases – current year tax positions .................... 15 21
Gross increases – tax positions in prior years ................... 3 10
Gross decreases – tax positions in prior years .................. (3) (6)
Settlements .............................................. (3) (1)
Lapse of statute of limitations ................................ (2) (1)
Gross unrecognized tax benefit at end of year ...................... $116 $106
Included in the balance at the end of 2012, are $70 of tax positions for which the ultimate deductibility
is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the
impact of deferred tax accounting, other than interest and penalties, the disallowance of these tax
positions would not affect the annual effective tax rate but would accelerate the payment of cash to the
taxing authority to an earlier period.
The total amount of such unrecognized tax benefits that, if recognized, would favorably affect the
effective income tax rate in future periods is $36 and $34 at the end of 2012 and 2011, respectively.
Accrued interest and penalties related to income tax matters are classified as a component of income
tax expense. Interest and penalties were not material in 2012 and 2011, respectively. Accrued interest
and penalties were $16 and $12 at the end of 2012 and 2011, respectively.
The Company is currently under audit by several taxing jurisdictions in the United States and in several
foreign countries. Some audits may conclude in the next 12 months and the unrecognized tax benefits
we have recorded in relation to the audits may differ from actual settlement amounts. It is not practical
to estimate the effect, if any, of any amount of such change during the next 12 months to previously
recorded uncertain tax positions in connection with the audits. The Company does not anticipate that
there will be a material increase or decrease in the total amount of unrecognized tax benefits in the
next twelve months.
The Company files income tax returns in the United States, various state and local jurisdictions, in
Canada and in several other foreign jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal, state or local examination for years before fiscal 2007. The Company is
currently subject to examination in Canada for fiscal years 2008 to present and in California for fiscal
years 2004 to present. No other examinations are believed to be material.
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