Sallie Mae 2007 Annual Report Download - page 197

19. Income Taxes (Continued)
January 1, 2007 balance of retained earnings. In addition, unrecognized tax benefits of $3 million are currently
treated as a pending refund claim, reducing the balance of total unrecognized tax benefits that if recognized
would affect the effective tax rate.
A reconciliation of unrecognized tax benefits from January 1, 2007 to December 31, 2007 is as follows:
(Dollars in millions)
Balance at January 1, 2007................................................. $113.3
Increases resulting from tax positions taken during a prior period .................... 86.5
Decreases resulting from tax positions taken during a prior period .................... (30.0)
Increases/(decreases) resulting from tax positions taken during the current period......... .3
Decreases related to settlements with taxing authorities ............................ (30.0)
Increases related to settlements with taxing authorities ............................ 42.3
Reductions related to the lapse of statute of limitations ............................ (7.6)
Balance at December 31, 2007 .............................................. $174.8
During 2007, the Company adjusted its federal unrecognized tax benefits to reflect the outcome of several
issues that were addressed with the IRS as a part of the 2003-2004 exam cycle, primarily regarding the timing
of recognition of certain income and deduction items. Several other less significant amounts of uncertain tax
benefits were also added during the year. In total, as of December 31, 2007, the Company has gross
unrecognized tax benefits of $175 million, unrecognized tax benefits that, if recognized, would impact the
effective tax rate of $35 million, as well as total interest and penalties recognized, net of tax benefit, in the
consolidated statements of income and consolidated balance sheet of $18 million.
Reasonably Possible Significant Increases/Decreases within Twelve Months
U.S. Federal Tax Uncertainties
The IRS issued a Revenue Agent’s Report (“RAR”) during the second quarter of 2007 concluding the
primary exam of the Company’s 2003 and 2004 U.S. federal tax returns. However, the exam of these years
remains open pending the conclusion of the separate IRS audit of an entity in which the Company is an
investor (any results of which are not expected to have a material impact on the Company’s unrecognized tax
benefit amounts). In addition, during the third quarter of 2007, the Company filed an administrative-level
appeal related to one unagreed item originating from the Company’s 2004 U.S. federal tax return. An estimate
of the range of the possible change to the balance of the Company’s unrecognized tax benefits that may result
from resolution of the remaining unagreed item cannot at this time be made, pending further development of
the appeals process.
In addition, the IRS began the examination of the Company’s 2005 and 2006 federal income tax returns
during the third quarter of 2007. It is reasonably possible that issues that arise during the exam may create the
need for an increase in unrecognized tax benefits. Until the exam proceeds further, an estimate of any such
amounts cannot currently be made.
Other Tax Uncertainties
In the event that the Company is not contacted for exam by additional tax authorities by the end of 2008,
it is reasonably possible that there will be a decrease in the Company’s unrecognized tax position liability, due
F-76
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise stated)