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Standards No. 5, ‘‘Accounting for Contingencies,’’ and related The amount of income taxes we pay is subject to ongoing audits by
pronouncements. Therefore, we have recorded reserves related to federal, state and foreign tax authorities, which may result in proposed
certain legal matters for which we believe it is probable that a loss has assessments. Our estimate for the potential outcome for any uncertain
been incurred and the range of such loss can be estimated. With respect tax issue is highly judgmental. We believe we have adequately provided
to other matters, we have concluded that a loss is only reasonably for any reasonably foreseeable outcome related to these matters.
possible or remote and, therefore, no liability is recorded. However, our future results may include favorable or unfavorable
INCOME TAXES –We calculate our current and deferred tax adjustments to our estimated tax liabilities in the period the
provision for the fiscal year based on estimates and assumptions that assessments are made or resolved or when statutes of limitation on
could differ from the actual results reflected in income tax returns filed potential assessments expire. As a result, our effective tax rate may
during the applicable calendar year. Adjustments based on filed returns fluctuate on a quarterly basis.
are recorded in the appropriate periods when identified. We file a OTHER SIGNIFICANT ACCOUNTING POLICIES –Other significant
consolidated federal tax return on a calendar year basis, generally in the accounting policies, not involving the same level of judgment of
second fiscal quarter of the subsequent year. uncertainty as those discussed above, are nevertheless important to an
We record a valuation allowance to reduce our deferred tax assets to understanding of the financial statements. These policies may require
the amount that is more likely than not to be realized. We have judgments on complex matters that are often subject to multiple
considered taxable income in carry-back periods, historical and sources of authoritative guidance. Certain of these matters are among
forecasted earnings, future taxable income, the mix of earnings in the topics currently under reexamination by accounting standard setters
jurisdictions in which we operate, and tax planning strategies in and regulators. Although specific conclusions reached by these
determining the need for a valuation allowance against our deferred tax standard setters may cause a material change in our accounting
assets. In the event we were to determine that we would not be able to policies, outcomes cannot be predicted with confidence. Also see
realize all or part of our deferred tax assets in the future, an adjustment Item 8, note 1 to our consolidated financial statements, which discusses
to the deferred tax assets would be charged to earnings in the period in accounting policies we have selected when there are acceptable
which we make such determination. Likewise, if we later determine that alternatives, and new or proposed accounting standards that may affect
it is more likely than not that the deferred tax assets would be realized, our financial reporting in the future.
we would reverse the applicable portion of the previously provided
valuation allowance.
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H&R BLOCK 2006 Form 10K