Morgan Stanley 2010 Annual Report Download - page 243

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company had tax credit carryforwards for which a related deferred tax asset of $5,267 million and $2,366
million was recorded as of December 31, 2010 and December 31, 2009, respectively. These carryforwards are
subject to annual limitations on utilization and will begin to expire in 2016.
The Company believes the recognized net deferred tax asset of $7,812 million (after valuation allowance) is
more likely than not to be realized based on expectations as to future taxable income in the jurisdictions in which
it operates.
The Company recorded net income tax provision (benefit) to Paid-in capital related to employee stock
compensation transactions of $322 million, ($33) million, $131 million, and $4 million in 2010, 2009, fiscal
2008, and the one month ended December 31, 2008, respectively.
Cash paid for income taxes was $1,091 million, $1,028 million, $1,406 million, and $113 million, in 2010, 2009,
fiscal 2008, and the one month ended December 31, 2008, respectively.
The following table presents the U.S. and non-U.S. components of income from continuing operations before
income tax expense/(benefit) and extraordinary gain for 2010, 2009, fiscal 2008 and the one month ended
December 31, 2008, respectively:
2010 2009 Fiscal 2008
One Month Ended
December 31, 2008
(dollars in millions)
U.S. ............................................... $3,550 $(1,451) $(2,862) $(1,119)
Non-U.S.(1) ......................................... 2,652 2,434 4,116 (875)
$6,202 $ 983 $ 1,254 $(1,994)
(1) Non-U.S. income is defined as income generated from operations located outside the U.S.
The total amount of unrecognized tax benefits was approximately $3.7 billion and $4.1 billion as of
December 31, 2010 and December 31, 2009, respectively. Of this total, approximately $1.7 billion and $2.1
billion, respectively, (net of federal benefit of state issues, competent authority and foreign tax credit offsets)
represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax
rate in future periods.
In accordance with the guidance for accounting for uncertainty in income taxes, penalties related to unrecognized
tax benefits may be classified as either income taxes or another expense classification. During 2010, the
Company changed the classification of penalties related to unrecognized tax benefits and began recording them
in provision for income taxes in the consolidated statements of income. The Company previously recorded such
penalties in Income (loss) from continuing operations before income taxes as part of Other expenses. The
Company believes the change in classification of penalties is preferable because such penalties are directly
dependent on and correlated to related income tax positions.
Additionally, the Company views penalties and interest on uncertain tax positions as part of the cost of managing
the Company’s overall tax exposure, and the change in presentation aligns the classification of penalties related
to unrecognized tax benefits with the classification of interest on unrecognized tax benefits already classified as
part of provision for income taxes. Penalties related to unrecognized tax benefits during 2010 and prior periods
were not material. Accordingly, the Company did not retrospectively adjust prior periods. The change in
classification did not impact Net income or Earnings per share, and the impact on Income (loss) from continuing
operations before income taxes was not material.
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