NetZero 2011 Annual Report Download - page 146

Table of Contents
UNITED ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES (Continued)
At December 31, 2011 and 2010, the Company had gross unrecognized tax benefits of $4.3 million and $8.5 million, respectively, all of
which, if recognized, would have an impact on the Company's effective income tax rate. A reconciliation of the beginning and ending amounts
of gross unrecognized tax benefits (before federal impact of state items), excluding interest and penalties, was as follows (in thousands):
The reductions in gross unrecognized tax benefits in the current year relate primarily to the settlement of a state income tax audit.
The Company files income tax returns in the U.S., various state and local jurisdictions, the U.K., Germany, and certain other foreign
jurisdictions. The Company is currently under audit by the Internal Revenue Service ("IRS") and certain state and local tax authorities. The
audits are in varying stages of completion. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may
be challenged by tax authorities. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and
circumstances, including progress of tax audits, case law developments and closing of statutes of limitations. Such adjustments are reflected in
the provision for income taxes, as appropriate. Tax years prior to 2008 are generally not subject to examination by the IRS except for items
involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. With few exceptions, the Company
is not subject to state or local examinations for years prior to 2006. The Company is generally not able to reliably estimate the ultimate
settlement amounts until the close of the audit. While the Company does not expect material changes, it is possible that the amount of
unrecognized benefit with respect to its uncertain tax positions could significantly increase or decrease within the next 12 months related to the
Company's ongoing audits. At this time, the Company is unable to make a reasonable estimate of the range of impact on the balance of uncertain
tax positions or the impact on the effective income tax rate related to such positions.
The Company had $1.4 million and $3.2 million accrued for interest and penalties relating to uncertain tax positions at December 31, 2011
and 2010, respectively, all of which is included in income taxes payable. The Company recognized net interest and penalties totaling
$0.5 million, $0.1 million and $(0.7) million for the years ended December 31, 2011, 2010 and 2009, respectively.
At December 31, 2011, U.S. income taxes have not been provided on $4.7 million of undistributable earnings of the Company's India
subsidiary because such earnings have been permanently reinvested in foreign operations. The determination of taxes associated with the
F-38
Year Ended December 31,
2011 2010 2009
Beginning balance
$
8,530
$
9,729
$
11,807
Additions for current year tax positions
965
743
—
Additions for prior year tax positions
527
475
1,276
Reductions related to settlements with taxing
authorities
(5,387
)
—
—
Reductions due to lapse in statute of
limitations
(343
)
(2,417
)
(3,354
)
Ending balance
$
4,292
$
8,530
$
9,729