Sallie Mae 2008 Annual Report Download - page 209

19. Income Taxes (Continued)
Accounting for Uncertainty in Income Taxes
The Company adopted the provisions of the FASB’s FIN No. 48, “Accounting for Uncertainty in Income
Taxes,” on January 1, 2007. As a result of the implementation of FIN No. 48, the Company recognized a
$6 million increase in its liability for unrecognized tax benefits, which was accounted for as a reduction to the
January 1, 2007 balance of retained earnings. The total amount of gross unrecognized tax benefits as of
January 1, 2007 was $113 million. As of December 31, 2007, the total amount of gross unrecognized tax
benefits was $175 million. Included in the $175 million are $35 million of unrecognized tax benefits that if
recognized, would favorably impact the effective tax rate.
The following table summarizes changes in unrecognized tax benefits for the years ended December 31,
2008 and 2007:
(Dollars in millions) 2008 2007
December 31,
Unrecognized tax benefits at beginning of year ....................... $174.8 $113.3
Increases resulting from tax positions taken during a prior period . ........... 11.3 86.5
Decreases resulting from tax positions taken during a prior period ........... (132.2) (30.0)
Increases/(decreases) resulting from tax positions taken during the current
period ...................................................... 36.2 .3
Decreases related to settlements with taxing authorities ................... (.1) (30.0)
Increases related to settlements with taxing authorities .................... — 42.3
Reductions related to the lapse of statute of limitations ................... (3.6) (7.6)
Unrecognized tax benefits at end of year ............................ $ 86.4 $174.8
As of December 31, 2008, the gross unrecognized tax benefits are $86 million. Included in the $86 million
are $21 million of unrecognized tax benefits that if recognized, would favorably impact the effective tax rate.
In addition, unrecognized tax benefits of $2 million are currently treated as a pending refund claim, reducing
the balance of unrecognized tax benefits that if recognized, would impact the effective tax rate. During 2008,
the Company adjusted its federal unrecognized tax benefits to incorporate new information received from the
IRS as a part of the 2005-2006 exam cycle for several carryover issues related to the timing of certain income
and deduction items. Several other less significant amounts of uncertain tax benefits were also added during
the year.
The Company recognizes interest related to unrecognized tax benefits in income tax expense, and
penalties, if any, in operating expenses. The Company has accrued interest and penalties, net of tax benefit, of
$10 million and $18 million as of December 31, 2008 and December 31, 2007, respectively. The income tax
expense for the year ended December 31, 2008 includes a reduction in the accrual of interest of $8 million,
primarily related to the reduction of uncertain tax benefits as a result of new information received from the
IRS as a part of the 2005-2006 exam cycle for several carryover issues related to the timing of certain income
and deduction items. The income tax expense for the year ended December 31, 2007 includes an increase in
the accrual of interest of $1 million.
Reasonably Possible Significant Increases/Decreases within Twelve Months
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
remain open pending the conclusion of the separate IRS audit of an entity in which the Company is an
F-89
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)