HR Block 2009 Annual Report Download - page 65

The deferred tax assets and liabilities reported at April 30, 2008 do not include deferred tax assets totaling
$21.4 million and deferred tax liabilities totaling $1.1 million, as these were disclosed on a net basis as assets of
discontinued operations held for sale in the prior year. The loss from discontinued operations for fiscal years 2009,
2008 and 2007 of $27.4 million, $754.6 million and $803.1 million, respectively are net of tax benefits of
$20.3 million, $411.1 million and $421.4 million, respectively. Our effective tax rate for discontinued
operations was 42.5% and 35.3% for fiscal years 2009 and 2008, respectively.
During the current year, we recorded a deferred tax asset of $145.6 million, representing the tax effects of the
difference between the tax and book basis in the stock of our brokerage business sold to Ameriprise in November
2008. For tax purposes, we incurred a capital loss upon disposition of that business, which generally can only be
utilized to the extent we realize capital gains within five years subsequent to the date of the loss. We do not
currently expect to be able to realize a tax benefit for substantially all of this loss and, therefore, recorded a
valuation allowance of $137.4 million, resulting in a net tax benefit during fiscal year 2009 of approximately
$9 million. We have a capital loss carryover of approximately $369 million which will expire if not used to offset
future capital gains before December 31, 2013.
Certain of our subsidiaries file stand-alone returns in various states and foreign jurisdictions, and others join in
filing consolidated of combined returns in such jurisdictions. At April 30, 2009, we had net operating losses (NOLs)
in various states and foreign jurisdictions. The amount of state NOLs vary by taxing jurisdiction. We recorded
deferred tax assets of $32.8 million for the tax effects of such losses and a valuation allowance of $19.5 million for
the portion of such losses that, more likely than not, will not be realized. If not used, the NOLs will expire in varying
amounts during fiscal years 2010 through 2029.
We intend to indefinitely reinvest foreign earnings, therefore, a provision has not been made for income taxes
that might be payable upon remittance of such earnings. Determination of the amount of unrecognized deferred
tax liability on unremitted foreign earnings is not practicable.
As a result of the initial adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(FIN 48) in fiscal year 2008, we recognized an additional reserve for uncertain tax positions of $9.7 million and a
corresponding decrease to retained earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2009 and 2008
is as follows:
Year Ended April 30, 2009 2008
(in 000s)
Balance, beginning of the year $ 137,608 $ 133,263
Additions based on tax positions related to prior years 14,541 26,283
Reductions based on tax positions related to prior years (6,096) (16,500)
Additions based on tax positions related to the current year 4,110 17,736
Reductions related to settlements with tax authorities (18,189) (18,633)
Expiration of statute of limitations (5,007) (5,692)
Foreign currency translation (2,362) 1,151
Balance, end of the year $ 124,605 $ 137,608
Of the $124.6 million ending gross unrecognized tax benefit balance, $107.0 million if recognized, would impact
the effective rate. This difference results from adjusting the gross balances for such items as federal, state and
foreign deferred items, interest and deductible taxes. We believe it is reasonably possible that the balance of
unrecognized tax benefits could decrease by approximately $15.5 million within the next twelve months due to
anticipated settlements of audit issues with various states. This amount is included in accounts payable, accrued
expenses and other current liabilities. The remaining amount is classified as long-term and is included in other
noncurrent liabilities in the consolidated balance sheet.
Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. The
amount of gross interest and penalties accrued on FIN 48 positions during fiscal year 2009 totaled $15.4 million.
The total gross interest and penalties accrued as of April 30, 2009 totaled $42.4 million.
We file a consolidated federal income tax return in the U.S. and file tax returns in various state and foreign
jurisdictions. The consolidated tax returns for the years 2006 and 2007 are currently under examination by the
Internal Revenue Service (IRS). The consolidated tax returns for the years 1999 – 2005 are at the appellate level.
Tax years prior to 1999 are closed by statute. Historically, tax returns in various foreign and state jurisdictions are
examined and settled upon completion of the examination.
H&R BLOCK 2009 Form 10K 61