Dell 2008 Annual Report Download - page 75

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
non-current liabilities in the Consolidated Statements of Financial Position. A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows:
Total
(in millions)
Balance at February 3, 2007 (adoption) $ 1,096
Increases related to tax positions of the current year 390
Increases related to tax positions of prior years 34
Reductions for tax positions of prior years (13)
Lapse of statute of limitations (6)
Settlements (18)
Balance at February 1, 2008 $ 1,483
Increases related to tax positions of the current year 298
Increases related to tax positions of prior years 19
Reductions for tax positions of prior years (217)
Lapse of statute of limitations (7)
Settlements (38)
Balance at January 30, 2009 $ 1,538
Fiscal 2009 reductions for tax positions of prior years in the table above include $163 million of items that did not impact Dell's effective tax rate for
Fiscal 2009. These items include foreign currency translation, withdrawal of positions expected to be taken for prior year tax filings, and a reduction
that is included in the deferred tax asset valuation allowance at January 30, 2009.
Associated with the unrecognized tax benefits of $1.5 billion at January 30, 2009, are interest and penalties as well as $166 million of offsetting tax
benefits associated with estimated transfer pricing, the benefit of interest deductions, and state income tax benefits. The net amount of $1.8 billion, if
recognized, would favorably affect Dell's effective tax rate.
Interest and penalties related to income tax liabilities are included in income tax expense. The balance of gross accrued interest and penalties
recorded in the Consolidated Statements of Financial Position at January 30, 2009 and February 1, 2008, was $400 million and $288 million,
respectively. During Fiscal 2009 and Fiscal 2008, $112 million and $88 million, respectively, related to interest and penalties were included in
income tax expense.
Dell is currently under income tax audits in various jurisdictions, including the U.S. The tax periods open to examination by the major taxing
jurisdictions to which Dell is subject include fiscal years 1997 through 2009. As a result of these audits, Dell maintains ongoing discussions and
negotiations relating to tax matters with the taxing authorities in these various jurisdictions. Dell's U.S. Federal income tax returns for fiscal years
2004 through 2006 are under examination, and the Internal Revenue Service has proposed certain preliminary assessments primarily related to
transfer pricing matters. Dell anticipates this audit will take several years to resolve and continues to believe that it has provided adequate reserves
related to the matters under audit. However, should Dell experience an unfavorable outcome in this matter, it could have a material impact on its
results of operations, financial position, or cash flows. Although the timing of income tax audit resolution and negotiations with taxing authorities
are highly uncertain, Dell does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next
12 months.
Dell takes certain non-income tax positions in the jurisdictions in which it operates and has received certain non-income tax assessments in various
jurisdictions. Dell is also involved in related non-income tax litigation matters in various jurisdictions. Dell believes its positions are supportable, a
liability is not probable, and that it will ultimately prevail. However, significant judgment is required in determining the ultimate outcome of these
matters. In the normal course of business, Dell's positions and conclusions related to its non-income taxes could be challenged and assessments may
be made. To the extent new information is obtained and Dell's views on its positions, probable outcomes of assessments, or litigation changes,
changes in estimates to Dell's accrued liabilities would be recorded in the period in which the determination is made.
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