Morgan Stanley 2014 Annual Report Download - page 292

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The total amount of unrecognized tax benefits was approximately $2.2 billion, $4.1 billion, and $4.1 billion at
December 31, 2014, December 31, 2013, and December 31, 2012, respectively. Of this total, approximately $1.0
billion, $1.4 billion, and $1.6 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.
Interest and penalties related to unrecognized tax benefits are classified as provision for income taxes. The
Company recognized $(35) million, $50 million, and $(10) million of interest expense (benefit) (net of federal
and state income tax benefits) in the Company’s consolidated statements of income for 2014, 2013, and 2012,
respectively. Interest expense accrued at December 31, 2014, December 31, 2013, and December 31, 2012 was
approximately $258 million, $293 million, and $243 million, respectively, net of federal and state income tax
benefits. Penalties related to unrecognized tax benefits for the years mentioned above were immaterial.
The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits
for 2014, 2013 and 2012 (dollars in millions):
Unrecognized Tax Benefits
Balance at December 31, 2011 .......................................................... $4,045
Increase based on tax positions related to the current period ................................... 299
Increase based on tax positions related to prior periods ....................................... 127
Decreases based on tax positions related to prior periods ..................................... (21)
Decreases related to settlements with taxing authorities ...................................... (260)
Decreases related to a lapse of applicable statute of limitations ................................ (125)
Balance at December 31, 2012 .......................................................... $4,065
Increase based on tax positions related to the current period ................................... $ 51
Increase based on tax positions related to prior periods ....................................... 267
Decreases based on tax positions related to prior periods ..................................... (141)
Decreases related to settlements with taxing authorities ...................................... (146)
Balance at December 31, 2013 .......................................................... $4,096
Increase based on tax positions related to the current period ................................... $ 135
Increase based on tax positions related to prior periods ....................................... 100
Decreases based on tax positions related to prior periods ..................................... (2,080)
Decreases related to settlements with taxing authorities ...................................... (19)
Decreases related to a lapse of applicable statute of limitations ................................ (4)
Balance at December 31, 2014 .......................................................... $2,228
The Company is under continuous examination by the IRS and other tax authorities in certain countries, such as
Japan and the U.K., and in states in which the Company has significant business operations, such as New York.
The Company is currently under review by the IRS Appeals Office for the remaining issues covering tax years
1999 – 2005 and has substantially completed the IRS field examination for the audit of tax years 2006 – 2008.
Also, the Company is currently at various levels of field examination with respect to audits by New York State
and New York City for tax years 2007 – 2009. During 2015, the Company expects to reach a conclusion with the
U.K. tax authorities on substantially all issues through tax year 2010, the resolution of which is not expected to
have a material impact on the effective tax rate on the Company’s consolidated financial statements.
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