HR Block 2014 Annual Report Download - page 38

30 2014 Form 10-K | H&R Block, Inc.
after analysis of each known issue and an analysis of historical experience. In cases where we have concluded that a
loss is only reasonably possible or remote, or is not reasonably estimable, no liability is accrued.
Sensitivity of Estimate to Change. It is reasonably possible that future litigation and related contingent losses may
vary from the amounts accrued. For some matters where a liability has not been accrued, we are able to estimate a
reasonably possible range of loss. Those matters for which an estimate is not reasonably possible are not included
within this estimated range. Therefore, this estimated range of reasonably possible loss represents what we believe
to be an estimate of reasonably possible loss only for certain matters meeting these criteria. It does not represent
our maximum loss exposure. For those matters, and for matters where a liability has been accrued, as of April 30,
2014, we believe the aggregate range of reasonably possible losses in excess of amounts accrued is not material.
However, our judgments on whether a loss is probable, reasonably possible or remote and our estimates of probable
loss amounts may differ from actual results due to difficulties in predicting the outcome of jury trials, arbitration
hearings, settlement discussions and related activity, predicting the outcome of class certification actions and
numerous other uncertainties. Due to the number of claims which are periodically asserted against us, and the
magnitude of damages sought in those claims, actual losses in the future may significantly differ from our current
estimates.
INCOME TAXES – UNCERTAIN TAX POSITIONS –
Nature of Estimates Required. The income tax laws of jurisdictions in which we operate are complex and subject to
different interpretations by the taxpayer and applicable government taxing authorities. Income tax returns filed by
us are based on our interpretation of these rules. The amount of income taxes we pay is subject to ongoing audits by
federal, state and foreign tax authorities, which may result in proposed assessments, including assessments of interest
or penalties. We have accrued a liability for uncertain tax positions that reflects our judgment as to the ultimate
resolution of the applicable issues if subject to judicial review or other settlement.
Assumptions and Approach Used. We evaluate each uncertain tax position based on its technical merits. If we
determine it is more likely than not a tax position will be sustained based on its technical merits, we record the impact
of the position in our consolidated financial statements at the largest amount that is greater than fifty percent likely
of being realized upon ultimate settlement. We do not record a tax benefit for tax positions where we have concluded
it is not more likely than not to be sustained. Differences between a tax position taken or expected to be taken in our
tax returns and the amount of benefit recognized and measured in the financial statements result in unrecognized
tax benefits, which are recorded in the balance sheet as either a liability for unrecognized tax benefits or reductions
to recorded tax assets, as applicable.
Sensitivity of Estimate to Change. Our assessment of the technical merits and measurement of tax benefits
associated with uncertain tax positions is subject to a high degree of judgment and estimation. Actual results may
differ from our current judgments due to a variety of factors, including changes in law, interpretations of law by taxing
authorities that differ from our assessments, changes in the jurisdictions in which we operate and results of routine
tax examinations. We believe we have adequately provided for any reasonably foreseeable outcome related to these
matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities
in the period the assessments are made or resolved, or when statutes of limitation on potential assessments expire.
As a result, our effective tax rate may fluctuate on a quarterly basis.
As of April 30, 2014, we accrued liabilities for unrecognized tax benefits on uncertain tax positions of approximately
$111 million. Of the total gross unrecognized tax benefit as of April 30, 2014, approximately $74 million would impact
our effective tax rate if ultimately recognized.
INCOME TAXES – VALUATION OF DEFERRED TAX ASSETS –
Nature of Estimates Required. We account for income taxes under the asset and liability method, which requires us
to record deferred income tax assets and liabilities for future tax consequences attributable to differences between
the financial statement carrying value of existing assets and liabilities and their respective tax basis. Deferred taxes
are determined separately within each tax jurisdiction based on provisions of enacted tax law.
We record a valuation allowance to reduce our deferred tax assets to the estimated amount that we believe is
more likely than not to be realized. Determination of a valuation allowance for deferred tax assets requires that we