Intel 2007 Annual Report Download - page 89

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective at the beginning of the first quarter of 2007, we adopted the provisions of FIN 48. As a result of the implementation
of FIN 48, we reduced the liability for net unrecognized tax benefits by $181 million, and accounted for the reduction as a
cumulative effect of a change in accounting principle that resulted in an increase to retained earnings of $181 million.
We have historically classified unrecognized tax benefits in current taxes payable. As a result of adoption of FIN 48, we
reclassified unrecognized tax benefits to long-term income taxes payable. Long-term income taxes payable include uncertain
tax positions, reduced by the associated federal deduction for state taxes and non-U.S. tax credits, and may also include other
long-term tax liabilities that are not uncertain but have not yet been paid.
The aggregate changes in the balance of gross unrecognized tax benefits were as follows:
During 2007, the U.S. Internal Revenue Service (IRS) closed its examination of our tax returns for the years 1999 through
2002, resolving the issues related to the tax benefits for export sales as well as a number of other issues. Additionally, we
reached a settlement with the IRS for years 2003 through 2005 with respect to the tax benefits for export sales. In connection
with the $739 million settlement with the IRS, we reversed long-term income taxes payable, which resulted in a $276 million
tax benefit in 2007.
Also during 2007, we effectively settled with the IRS on several other matters related to the audit for the 2003 and 2004 tax
years, despite the fact that the IRS audit for these years remains open. The result of effectively settling these positions and the
process of re-evaluating, based on all available information and certain required remeasurements, was a reduction of
$389 million in the balance of our gross unrecognized tax benefits, $155 million of which resulted in a tax benefit in 2007.
If the remaining balance of $794 million of unrecognized tax benefits at December 29, 2007 were realized in a future period, it
would result in a tax benefit of $754 million and a reduction of the effective tax rate.
During all years presented, we recognized interest and penalties related to unrecognized tax benefits within the provision for
taxes on the consolidated statements of income. Therefore, no change was necessary upon adoption of FIN 48. In 2007, we
recognized a net benefit of $142 million, primarily due to the reversal of accrued interest and penalties related to the settlement
activity described above. As of December 29, 2007, we had $115 million, and as of the date of adoption we had $257 million,
of accrued interest and penalties related to unrecognized tax benefits.
Although the timing of the resolution and/or closure on audits is highly uncertain, it is reasonably possible that the balance of
gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years
remaining subject to examination and the number of matters being examined, we are unable to estimate the range of possible
adjustments to the balance of gross unrecognized tax benefits.
We file U.S. federal, U.S. state, and non-U.S. tax returns. For U.S. state and non-U.S. tax returns, we are generally no longer
subject to tax examinations for years prior to 1996. For U.S. federal tax returns, we are no longer subject to tax examination
for years prior to 2003.
80
(In Millions)
Beginning balance as of December 31, 2006 (date of adoption)
$
1,896
Settlements and effective settlements with tax authorities and related remeasurements
(1,243
)
Lapse of statute of limitations
—
Increases in balances related to tax positions taken during prior periods
106
Decreases in balances related to tax positions taken during prior periods
(26
)
Increases in balances related to tax positions taken during current period
61
December 29, 2007
$
794