Pitney Bowes 2009 Annual Report Download - page 78

PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
60
2009 2008 2007
Balance at beginning of year $ 434,164 $ 398,878 $ 356,063
Increases from prior period positions 65,540 21,623 28,762
Decreases from prior period positions (7,741) (8,899) (20,063)
Increases from current period positions 42,696 33,028 61,778
Decreases from current period positions - - -
Decreases relating to settlements with tax authorities (3,173) (7,426) (2,165)
Reductions as a result of a lapse of the
applicable statute of limitations (15,921) (3,040) (25,497)
Balance at end of year $ 515,565 $ 434,164 $ 398,878
Tax authorities continually examine our tax filings. On a regular basis, we conclude tax return examinations, statutes of limitations
expire, and court decisions interpret tax law. We regularly assess tax uncertainties in light of these developments. As a result, it is
reasonably possible that the amount of our unrecognized tax benefits will increase or decrease in the next 12 months, but we expect
this change to be less than 10% of our unrecognized tax benefits. We recognize interest and penalties related to uncertain tax
positions in our provision for income taxes or discontinued operations as appropriate. During the years ended December 31, 2009,
2008 and 2007 we recorded $23.0 million, $25.6 million and $9.5 million, respectively, in interest and penalties and this amount was
included in discontinued operations. We had $185.6 million, $160.3 million and $134.7 million accrued for the payment of interest
and penalties at December 31, 2009, 2008 and 2007, respectively.
Other Tax Matters
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the
related financial statement implications. Tax reserves have been established which we believe to be appropriate given the possibility
of tax adjustments. Determining the appropriate level of tax reserves requires us to exercise judgment regarding the uncertain
application of tax law. The amount of reserves is adjusted when information becomes available or when an event occurs indicating a
change in the reserve is appropriate. Future changes in tax reserve requirements could have a material impact on our results of
operations.
We are continually under examination by tax authorities in the United States, other countries and local jurisdictions in which we have
operations. The years under examination vary by jurisdiction. The current IRS exam of tax years 2001-2004 is estimated to be
completed within the next two years and the examination of years 2005-2008 has commenced. In connection with the 2001-2004
exam, we have received notices of proposed adjustments to our filed returns. Tax reserves have been established which we believe to
be appropriate given the possibility of tax adjustments. We are also disputing a formal request from the IRS in the form of a civil
summons to provide certain company workpapers. We believe that certain documents being sought should not be produced because
they are privileged. A decision by the Rhode Island U.S. District Court in a similar case that supported our position was overturned on
appeal by the First Circuit Court of Appeals and the federal judicial circuits are now divided on this issue. The taxpayer in the First
Circuit decision has filed a petition for a writ of certiorari with the U.S. Supreme Court requesting review of the First Circuit decision.
Also in connection with the 2001-2004 audits, we have entered into a settlement with the IRS regarding the tax treatment of certain
lease transactions related to the Capital Services business that we sold in 2006. Prior to 2007, we accrued and paid the IRS the
additional tax associated with this settlement. A variety of post-1999 tax years remain subject to examination by other tax authorities,
including the U.K., Canada, France, Germany and various U.S. states. Tax reserves have been established which we believe to be
appropriate given the possibility of tax adjustments. However, the resolution of such matters could have a material impact on our
results of operations, financial position and cash flows.
During 2009, we examined the taxes payable and deferred income tax accounts of the Company and determined that adjustments
needed to be made to correct errors in these accounts. As a part of that process, we implemented certain changes to our tax accounting
processes and procedures including implementing new tax software. These adjustments related primarily to our discontinued Capital
Services business sold in 2006 and accumulated over an extended period dating back to the early 1990's. The impact of these
adjustments was not material to any individual prior period. Accordingly, in the fourth quarter of 2009, the Company recorded an
additional $3.0 million tax provision, related primarily to state tax adjustments and international tax rate changes, and an additional
$4.3 million provision in its loss from discontinued operations representing interest on Capital Services' tax uncertainties; both of
these adjustments relate to fiscal years 2007 and 2008. Other identified tax adjustments, totaling $98.9 million, relate primarily to