Quest Diagnostics 2012 Annual Report Download - page 97

F- 24
The total amount of unrecognized tax benefits as of and for the years ended December 31, 2012, 2011 and 2010
consisted of the following:
2012 2011 2010
Balance, beginning of year $ 194,861 $ 151,554 $ 126,454
Additions:
For tax positions of current year 12,142 63,343 20,904
For tax positions of prior years 10,614 9,196 28,140
Reductions:
Changes in judgment (1,720)(13,543)(13,467)
Expirations of statutes of limitations (6,061)(2,952)(10,477)
Settlements (10,404)(12,737)—
Balance, end of year $ 199,432 $ 194,861 $ 151,554
The contingent liabilities for tax positions primarily relate to uncertainties associated with the realization of tax
benefits derived from the allocation of income and expense among state jurisdictions, the characterization and timing of certain
tax deductions associated with business combinations, income and expenses associated with certain intercompany licensing
arrangements, and the deductibility of certain settlement payments.
The total amount of unrecognized tax benefits as of December 31, 2012, that, if recognized, would affect the effective
income tax rate from continuing operations is $107 million. Based upon the expiration of statutes of limitations, settlements
and/or the conclusion of tax examinations, the Company believes it is reasonably possible that the total amount of unrecognized
tax benefits may decrease by up to $8 million within the next twelve months.
Accruals for interest expense on contingent tax liabilities are classified in income tax expense in the consolidated
statements of operations. Accruals for penalties have historically been immaterial. Interest expense included in income tax
expense in 2012, 2011 and 2010 was approximately $3 million, $3 million and $2 million, respectively. As of December 31,
2012 and 2011, the Company has approximately $13 million and $11 million, respectively, accrued, net of the benefit of a
federal and state deduction, for the payment of interest on uncertain tax positions.
The recognition and measurement of certain tax benefits includes estimates and judgment by management and
inherently involves subjectivity. Changes in estimates may create volatility in the Company's effective tax rate in future periods
and may be due to settlements with various tax authorities (either favorable or unfavorable), the expiration of the statute of
limitations on some tax positions and obtaining new information about particular tax positions that may cause management to
change its estimates.
In the regular course of business, various federal, state and local and foreign tax authorities conduct examinations of
the Company's income tax filings and the Company generally remains subject to examination until the statute of limitations
expires for the respective jurisdiction. The Internal Revenue Service (“IRS”) has completed its examinations of the Company's
consolidated federal income tax returns up through and including the 2007 tax year. At this time, the Company does not believe
that there will be any material additional payments beyond its recorded contingent liability reserves that may be required as a
result of these tax audits. As of December 31, 2012, a summary of the tax years that remain subject to examination for the
Company's major jurisdictions are:
United States - federal 2008 - 2012
United States - various states 2005 - 2012
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)