Google 2011 Annual Report Download - page 110

As of December 31, 2011, our federal and state net operating loss carryforwards for income tax purposes were
approximately $420 million and $310 million. If not utilized, the federal net operating loss carryforwards will begin
to expire in 2018 and the state net operating loss carryforwards will begin to expire in 2014. The net operating loss
carryforwards are subject to various annual limitations under Section 382 of the Internal Revenue Code.
As of December 31, 2011, our California research and development credit carryforwards for income tax
purposes were approximately $55 million that can be carried over indefinitely. We believe it is more likely than not
that a portion of the state tax credit will not be realized. Therefore, we have recorded a valuation allowance on the
state tax credit carryforward in the amount of $48 million. We will reassess the valuation allowance quarterly and if
future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded
accordingly.
As of December 31, 2011, our federal and state capital loss carryforwards for income tax purposes were
approximately $165 million and $422 million. We also have deferred tax assets for impairment losses that, if
recognized, will be capital in nature. We believe that it is more likely than not that our deferred tax assets for capital
losses and impairment losses will not be realized. Therefore, we have recorded a valuation allowance on both our
federal and state deferred tax assets for these items in the amount of $285 million. We will reassess the valuation
allowance quarterly and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit
will be recorded accordingly.
Uncertain Tax Positions
The following table summarizes the activity related to our gross unrecognized tax benefits from January 1,
2009 to December 31, 2011 (in millions):
Balance as of January 1, 2009 .................................................................. $ 721
Increases related to prior year tax positions ....................................................... 222
Decreases related to prior year tax positions ...................................................... (1)
Increases related to current year tax positions ..................................................... 246
Balance as of December 31, 2009 ............................................................... 1,188
Increases related to prior year tax positions ....................................................... 37
Decreases related to prior year tax positions ...................................................... (197)
Decreases related to settlement with tax authorities ............................................... (47)
Decreases as a result of a lapse of applicable statute of limitation .................................... (97)
Increases related to current year tax positions ..................................................... 256
Balance as of December 31, 2010 ............................................................... 1,140
Increases related to prior year tax positions ....................................................... 77
Decreases related to prior year tax positions ...................................................... (9)
Increases related to current year tax positions ..................................................... 361
Decreases related to settlement with tax authorities ............................................... (5)
Balance as of December 31, 2011 ................................................................ $1,564
Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $814 million,
$951 million, and $1,350 million as of December 31, 2009, 2010, and 2011.
As of December 31, 2010 and 2011, we had accrued $97 million and $129 million for payment of interest and
penalties. Interest and penalties included in our provision for income taxes were not material in all the periods
presented.
We and our subsidiaries are routinely examined by various taxing authorities. Although we file U.S. federal,
U.S. state, and foreign tax returns, our two major tax jurisdictions are the U.S. and Ireland. During the three months
ended December 31, 2007, the IRS completed its examination of our 2003 and 2004 tax years. We have filed an
81