Oracle 2009 Annual Report Download - page 214

The valuation allowance was $649 million at May 31, 2010 and $137 million at May 31, 2009. The net increase is primarily attributable to
deferred taxes of Sun, principally state and foreign attributes. Substantially all of the valuation allowance relates to tax assets established in
purchase accounting. Any subsequent reduction of that portion of the valuation allowance and the recognition of the associated tax benefits
associated with our acquisitions will be recorded to our provision for income taxes subsequent to our final determination of the valuation
allowance or the conclusion of the measurement period (as defined above), whichever comes first.
At May 31, 2010, we had federal net operating loss carryforwards of approximately $1.6 billion. These losses expire in various years
between fiscal 2012 and fiscal 2029, and are subject to limitations on their utilization. We had state net operating loss carryforwards of
approximately $3.8 billion, which expire between fiscal 2011 and fiscal 2029, and are subject to limitations on their utilization. We had
foreign net operating loss carryforwards of approximately $1.3 billion, which are subject to limitations on their utilization. Approximately
$1.2 billion of these net operating losses are not currently subject to expiration dates. The remainder, approximately $90 million, expires
between fiscal 2011 and fiscal 2030. We had tax credit carryforwards of approximately $1.2 billion, which are subject to limitations on their
utilization. Approximately $405 million of these tax credit carryforwards are not currently subject to expiration dates. The remainder,
approximately $791 million, expires in various years between fiscal 2011 and fiscal 2029.
We classify our unrecognized tax benefits as either current or non-current income taxes payable in the accompanying consolidated balance
sheets. The aggregate changes in the balance of our gross unrecognized tax benefits, including acquisitions, were as follows:
Year Ended May 31,
(in millions) 2010 2009 2008
Gross unrecognized tax benefits as of June 1 $ 2,262 $ 1,693 $ 1,251
Increases related to tax positions from prior fiscal years 94 434 256
Decreases related to tax positions from prior fiscal years (491) (86) (5)
Increases related to tax positions taken during current fiscal year 813 370 180
Settlements with tax authorities (88) (41) (20)
Lapses of statutes of limitation (48) (25) (24)
Other, net (15) (83) 55
Total gross unrecognized tax benefits as of May 31 $ 2,527 $ 2,262 $ 1,693
As of May 31, 2010, $1.9 billion of unrecognized benefits would affect our effective tax rate if recognized. We recognized interest and
penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations of $3 million
during fiscal 2010. The amount of interest and penalties accrued as of May 31, 2010 was $576 million.
During fiscal 2010, the provision for income taxes was reduced due to recent judicial decisions, including the March 2010 U.S. Court of
Appeals Ninth Circuit ruling in Xilinx v. Commissioner, and settlements with various worldwide tax authorities.
Domestically, U.S. federal and state taxing authorities are currently examining income tax returns of Oracle and various acquired entities
for years through fiscal 2008. Many issues are at an advanced stage in the examination process, the most significant of which include the
deductibility of certain royalty payments, issues related to certain capital gains and losses, extraterritorial income exemptions, domestic
production activity deductions, stewardship deductions, stock-based compensation and foreign tax credits taken. Other issues are related to
years with expiring statutes of limitation. With all of these domestic audit issues considered in the aggregate, we believe it was reasonably
possible that, as of May 31, 2010, the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release,
or a combination of both) in the next 12 months by as much as $399 million ($353 million net of offsetting tax benefits). Our U.S. federal
and, with some exceptions, our state income tax returns have been examined for all years prior to fiscal 2000, and we are no longer subject
to audit for those periods.
Internationally, tax authorities for numerous non-U.S. jurisdictions are also examining returns affecting our unrecognized tax benefits. We
believe it was reasonably possible that, as of May 31, 2010, the gross unrecognized tax benefits, could decrease (whether by payment,
release, or a combination of both) by as much as $187 million ($53 million net of offsetting tax benefits) in the next 12 months, related
primarily to transfer pricing and a technical matter of corporate restructuring, which would be affected by the possible passage of favorable
legislation. With some exceptions, we are generally no longer subject to tax examinations in non-U.S. jurisdictions for years prior to fiscal
1998.
We believe that we have adequately provided for any reasonably foreseeable outcomes related to our tax audits and that any settlement will
not have a material adverse effect on our consolidated financial position or results of operations. However, there can be no assurances as to
the possible outcomes.
We previously negotiated three successive unilateral Advance Pricing Agreements with the IRS that cover many of our intercompany
transfer pricing issues and preclude the IRS from making a transfer pricing adjustment within the scope of the agreements. These
agreements are effective for fiscal years through May 31, 2006. We have submitted to the IRS a request for another renewal of this Advance
Pricing Agreement for the years ending May 31, 2007 through May 31, 2011. However, these agreements do not cover all elements of our
transfer pricing and do not bind tax authorities outside the United States. We have finalized two bilateral Advance Pricing Agreements, one
of which was effective for the years ending May 31, 2002 through May 31, 2006 and we have submitted a request for a renewal of this
agreement for the years ending May 31, 2007 through May 31, 2011. There can be no guarantee that such negotiations will result in an
agreement. The additional bilateral agreement covers the period from June 1, 2001 through January 25, 2008.
Source: ORACLE CORP, 10-K, July 01, 2010 Powered by Morningstar® Document Research℠