Medtronic 2010 Annual Report Download - page 92

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88 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
If all of the Company’s unrecognized tax benefits as of April 30,
2010, April 24, 2009 and April 25, 2008 were recognized, $459
million, $360 million and $370 million would impact the Company’s
effective tax rate, respectively. Although the Company believes
that it has adequately provided for liabilities resulting from tax
assessments by taxing authorities, positions taken by these tax
authorities could have a material impact on the Company’s
effective tax rate in future periods.
The Company and the IRS are in settlement discussions as it
relates to the IRS audit of fiscal years 1997, 1998 and 1999 and the
allocation of income between Medtronic, Inc. and its wholly
owned subsidiary in Switzerland. Based on these discussions, the
Company has made a $70 million deposit with the IRS. As no
settlement has been reached with the IRS, the Company continues
to record the gross unrecognized tax benefit as a long-term
liability as it relates to this uncertain tax position. The Company
has recorded all remaining gross unrecognized tax benefits as a
long-term liability as well, as it does not expect significant
payments to occur or the total amount of unrecognized tax
benefits to change significantly over the next 12 months.
The Company recognizes interest and penalties related to
income tax matters in the provision for income taxes in the
consolidated statements of earnings and records the liability in
the current or long-term income taxes payable, as appropriate.
The Company had $94 million, $73 million and $91 million of
accrued gross interest and penalties as of April 30, 2010, April 24,
2009 and April 25, 2008, respectively. During the fiscal years
ended April 30, 2010, April 24, 2009 and April 25, 2008, the
Company recognized interest expense, net of tax benefit, of
approximately $14 million, $18 million and $24 million in the
provision for income taxes in the consolidated statement of
earnings, respectively.
Tax audits associated with the allocation of income, and other
complex issues, may require an extended period of time to
resolve and may result in income tax adjustments if changes to
the Company’s allocation are required between jurisdictions with
different tax rates. Tax authorities periodically review the
Company’s tax returns and propose adjustments to the Company’s
tax filings. The IRS has settled its audits with the Company for all
years through fiscal year 1996. Tax years settled with the IRS may
remain open for foreign tax audits and competent authority
proceedings. Competent authority proceedings are a means to
resolve intercompany pricing disagreements between countries.
In August 2003, the IRS proposed adjustments arising out of its
audit of the fiscal years 1997, 1998 and 1999 tax returns. The
Company initiated defense of these adjustments at the IRS
appellate level and in the second quarter of fiscal year 2006 the
Company reached settlement on most, but not all matters. The
remaining issue relates to the allocation of income between
Medtronic, Inc., and its wholly owned subsidiary in Switzerland.
On April 16, 2008, the IRS issued a statutory notice of deficiency
with respect to this remaining issue. The Company filed a Petition
with the U.S. Tax Court on July 14, 2008 objecting to the
deficiency. The Company is in settlement discussions with the IRS
as it relates to the outstanding issue; however, a settlement has
not yet been reached.
In September 2005, the IRS issued its audit report for fiscal
years 2000, 2001 and 2002. In addition, the IRS issued its audit
report for fiscal years 2003 and 2004 in March 2007. The Company
has reached agreement with the IRS on substantially all of the
proposed adjustments for these fiscal years 2000 through 2004.
The only item of significance that remains open for these years
relates to the carryover impact of the allocation of income
between Medtronic, Inc. and its wholly owned subsidiary in
Switzerland for fiscal years 1997 through 1999.
In March 2009, the IRS issued its audit report for fiscal years
2005 and 2006. The Company has reached agreement with the
IRS on many, but not all, of the proposed adjustments for fiscal
years 2005 and 2006. The significant issues that remain unresolved
relate to the allocation of income between Medtronic, Inc. and its
wholly owned subsidiaries and the timing of the deductibility of a
settlement payment. For the proposed adjustments that the