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SUPPORTSOFT, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7. Income Taxes (Continued)
The Company's India based subsidiary was granted a tax holiday related to its research and development activities. The tax holiday expires in 2008. The tax
holiday had an immaterial impact on the current year financial statements.
Cumulative unremitted foreign earnings that are considered to be indefinitely reinvested outside the United States and on which no U.S. taxes have been
provided were approximately $4.1 million at December 31, 2007. If such earnings were distributed, the Company would not accrue any additional taxes due to
the full valuation allowance against its deferred tax assets.
Effective January 1, 2007, the Company adopted Financial Accounting Standards Interpretation, or FIN, No. 48, "Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109." FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of uncertain tax positions taken or expected to be taken in a company's income tax return, and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 utilizes a two-step approach for
evaluating uncertain tax positions accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes" (SFAS No. 109). Step one, "Recognition",
requires a company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including
resolution of related appeals or litigation processes, if any. Step two, "Measurement", is based on the largest amount of benefit, which is more likely than not to
be realized on ultimate settlement. The cumulative effect of adopting FIN No. 48 on January 1, 2007 is recognized as a change in accounting principle, recorded
as an adjustment to the opening balance of retained earnings on the adoption date.
As a result of FIN No. 48 implementation, there was no change in the liability for unrecognized tax benefits related to tax positions taken in prior periods. In
2007, the Company reclassified $312,000 from current taxes payables to long-term taxes payable as FIN 48 specifies that tax positions for which the timing of
the ultimate resolution is uncertain should be recognized as long-term liabilities.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance at January 1, 2007 $ 1,844
Additions based on tax positions related to the current year 171
Reductions resulting from lapse of a statue of limitations (10)
Settlements —
Balance at December 31, 2007 $ 2,005
The Company's total amounts of unrecognized tax benefits that, if recognized, would affect its effective tax rate is $311,000 and $422,000 as of January 1,
2007 and December 31, 2007, respectively.
Upon adoption of FIN 48, the Company's policy to include interest and penalties related to unrecognized tax benefits within the Company's provision for
(benefit from) income taxes did not change. The Company had $23,000 and $40,000 accrued for payment of interest and penalties related to unrecognized tax
benefit as of January 1, 2007 and December 31, 2007, respectively. The Company recognized $17,000 of interest and penalties related to unrecognized tax
benefits income taxes during the year.
76
Source: SUPPORTSOFT INC, 10-K, March 13, 2008