Metro PCS 2008 Annual Report Download - page 134

MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
F-32
Audits and Uncertain Tax Benefits
The Company files income tax returns in the U.S. federal and certain state jurisdictions and is subject to
examinations by the Internal Revenue Service (the “IRS”) and other taxing authorities. These audits can result in
adjustments of taxes due or adjustments of the net operating losses which are available to offset future taxable
income. The Company’s estimate of the potential outcome of any uncertain tax issue prior to audit is subject to
management’s assessment of relevant risks, facts, and circumstances existing at that time. An unfavorable result
under audit may reduce the amount of federal and state net operating losses the Company has available for carry
forward to offset future taxable income, or may increase the amount of tax due for the period under audit, resulting
in an increase to the effective rate in the year of resolution.
In 2008, MetroPCS concluded a state audit which did not result in a material impact to the financial statements.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits are as follows (in
thousands):
Balance, January 1, 2008 ..................................................................................... $ 19,328
Increases for tax provisions taken during a prior period .................................... —
Increases for tax provisions taken during the current period.............................. —
Decreases relating to settlements ....................................................................... —
Decreases resulting from the expiration of the statute of limitations ................. —
Balance, December 31, 2008 ............................................................................... $ 19,328
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $12.6
million and $12.6 million as of December 31, 2008 and 2007, respectively. Additionally, the total interest and
penalties which would affect the effective tax rate is $13.6 million and $12.0 million as of December 31, 2008 and
2007, respectively. The Company continues to recognize both interest and penalties related to unrecognized tax
benefits as a component of income tax expense. The Company recognized gross interest and penalties of $2.5
million during 2008, $2.8 million during 2007 and $3.4 million during 2006. Accrued gross interest and penalties
were $18.3 million and $15.8 million as of December 31, 2008 and 2007, respectively. A state examination is
currently ongoing and the Company believes it is reasonably possible that the amount of unrecognized tax benefits
could significantly decrease within the next 12 month period. The Company does not anticipate that a proposed
adjustment would result in a material change to the Company’s financial position. The gross unrecognized tax
benefits could change due to settlement with this state in an amount up to $2.7 million. In another state jurisdiction,
it is reasonably possible that the amount of unrecognized tax benefits could significantly decrease within the next 12
months due to the expiration of a statute. The gross unrecognized tax benefit for this tax position could decrease in
an amount up to $13.2 million.
The IRS is currently examining the 2005 and 2006 tax years of Royal Street Communications. Management
does not believe the examination will have a significant effect on the Company’s tax position.
In addition, there are several state income and franchise tax examinations that are currently in progress for the
Company and/or certain of its subsidiaries for various tax years. Management does not believe these examinations
will have a significant effect on the Company’s tax position.