Goldman Sachs 2015 Annual Report Download - page 206

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unrecognized Tax Benefits
The firm recognizes tax positions in the financial statements
only when it is more likely than not that the position will be
sustained on examination by the relevant taxing authority
based on the technical merits of the position. A position
that meets this standard is measured at the largest amount
of benefit that will more likely than not be realized on
settlement. A liability is established for differences between
positions taken in a tax return and amounts recognized in
the financial statements.
The accrued liability for interest expense related to income
tax matters and income tax penalties was $101 million as of
both December 2015 and December 2014. The firm
recognized interest expense and income tax penalties of
$17 million, $45 million and $53 million for 2015, 2014
and 2013, respectively. It is reasonably possible that
unrecognized tax benefits could change significantly during
the twelve months subsequent to December 2015 due to
potential audit settlements. However, at this time it is not
possible to estimate any potential change.
The table below presents the changes in the liability for
unrecognized tax benefits. This liability is included in
“Other liabilities and accrued expenses.” See Note 17 for
further information.
As of December
$ in millions 2015 2014 2013
Balance, beginning of year $ 871 $ 1,765 $2,237
Increases based on tax positions
related to the current year 65 204 144
Increases based on tax positions
related to prior years 158 263 149
Decreases based on tax positions
related to prior years (205) (241) (471)
Decreases related to settlements (87) (1,112) (299)
Exchange rate fluctuations 23 (8) 5
Balance, end of year $ 825 $ 871 $1,765
Related deferred income tax asset 197 172 475
Net unrecognized tax benefit $ 628 $ 699 $1,290
Regulatory Tax Examinations
The firm is subject to examination by the U.S. Internal
Revenue Service (IRS) and other taxing authorities in
jurisdictions where the firm has significant business
operations, such as the United Kingdom, Japan, Hong
Kong, Korea and various states, such as New York. The tax
years under examination vary by jurisdiction. The firm does
not expect completion of these audits to have a material
impact on the firm’s financial condition but it may be
material to operating results for a particular period,
depending, in part, on the operating results for that period.
The table below presents the earliest tax years that remain
subject to examination by major jurisdiction.
Jurisdiction
As of
December 2015
U.S. Federal 2008
New York State and City 2007
United Kingdom 2014
Japan 2010
Hong Kong 2006
Korea 2010
The U.S. Federal examinations of fiscal 2008 through
calendar 2010 have been finalized, but the settlement is
subject to review by the Joint Committee of Taxation. The
examinations of 2011 and 2012 began in 2013.
The firm has been accepted into the Compliance Assurance
Process program by the IRS for the 2013, 2014, 2015 and
2016 tax years. This program allows the firm to work with
the IRS to identify and resolve potential U.S. federal tax
issues before the filing of tax returns. The 2013 tax year is
the first year that was examined under the program, and
2013 and 2014 remain subject to post-filing review.
New York State and City examinations of fiscal 2007
through calendar 2010 began in 2013. New York State and
City examinations of 2011 through 2014 began in 2015.
All years including and subsequent to the years in the table
above remain open to examination by the taxing
authorities. The firm believes that the liability for
unrecognized tax benefits it has established is adequate in
relation to the potential for additional assessments.
194 Goldman Sachs 2015 Form 10-K