Morgan Stanley 2014 Annual Report Download - page 99

Income Taxes.
The Company is subject to the income and indirect tax laws of the U.S., its states and municipalities and those of
the foreign jurisdictions in which the Company has significant business operations. These tax laws are complex
and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. The
Company must make judgments and interpretations about the application of these inherently complex tax laws
when determining the provision for income taxes and the expense for indirect taxes and must also make estimates
about when certain items affect taxable income in the various tax jurisdictions. Disputes over interpretations of
the tax laws may be settled with the taxing authority upon examination or audit. The Company periodically
evaluates the likelihood of assessments in each taxing jurisdiction resulting from current and subsequent years’
examinations, and unrecognized tax benefits related to potential losses that may arise from tax audits are
established in accordance with the guidance on accounting for unrecognized tax benefits. Once established,
unrecognized tax benefits are adjusted when there is more information available or when an event occurs
requiring a change.
The Company’s provision for income taxes is composed of current and deferred taxes. Current income taxes
approximate taxes to be paid or refunded for the current period. The Company’s deferred income taxes reflect the
net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and
are measured using the applicable enacted tax rates and laws that will be in effect when such differences are
expected to reverse. The Company’s deferred tax balances also include deferred assets related to tax attribute
carryforwards, such as net operating losses and tax credits that will be realized through reduction of future tax
liabilities and, in some cases, are subject to expiration if not utilized within certain periods. The Company
performs regular reviews to ascertain whether deferred tax assets are realizable. These reviews include
management’s estimates and assumptions regarding future taxable income and incorporate various tax planning
strategies, including strategies that may be available to utilize net operating losses before they expire. Once the
deferred tax asset balances have been determined, the Company may record a valuation allowance against the
deferred tax asset balances to reflect the amount of these balances (net of valuation allowance) that the Company
estimates it is more likely than not to realize at a future date. Both current and deferred income taxes could
reflect adjustments related to the Company’s unrecognized tax benefits.
Significant judgment is required in estimating the consolidated provision for (benefit from) income taxes, current
and deferred tax balances (including valuation allowance, if any), accrued interest or penalties and uncertain tax
positions. Revisions in our estimates and/or the actual costs of a tax assessment may ultimately be materially
different from the recorded accruals and unrecognized tax benefits, if any.
See Note 2 to the Company’s consolidated financial statements in Item 8 for additional information on the
Company’s significant assumptions, judgments and interpretations associated with the accounting for income
taxes and Note 20 to the Company’s consolidated financial statements in Item 8 for additional information on the
Company’s tax examinations.
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