Time Magazine 2012 Annual Report Download - page 102

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accounting for Uncertainty in Income Taxes
The Company recognizes income tax benefits for tax positions determined more likely than not to be
sustained upon examination, based on the technical merits of the positions.
Changes in the Company’s uncertain income tax positions, excluding the related accrual for interest and
penalties, from January 1 through December 31 are set forth below (millions):
Year Ended December 31,
2012 2011 2010
Beginning balance ........................................ $ 2,122 $ 2,100 $ 1,953
Additions for prior year tax positions .......................... 102 88 134
Additions for current year tax positions ........................ 97 120 80
Reductions for prior year tax positions ......................... (61) (153) (52)
Settlements .............................................. (26) (15) (8)
Lapses in statute of limitations ............................... (12) (18) (7)
Ending balance ........................................... $ 2,222 $ 2,122 $ 2,100
Should the Company’s position with respect to these uncertain tax positions be upheld, the significant
majority of the effect would be recorded in the Consolidated Statement of Operations as part of the Income tax
provision.
During the year ended December 31, 2012, the Company recorded interest reserves through the Consolidated
Statement of Operations of approximately $59 million and made interest payments in connection with
settlements reached during 2012 of approximately $21 million. During the year ended December 31, 2011, the
Company recorded interest reserves through the Consolidated Statement of Operations of approximately
$51 million and made interest payments in connection with settlements reached during 2011 of approximately
$12 million. The amount accrued for interest and penalties as of December 31, 2012 and 2011 was $425 million
and $387 million, respectively. The Company’s policy is to recognize interest and penalties accrued on uncertain
tax positions as part of income tax expense.
Uncertainties related to certain tax matters were settled subsequent to the year ended December 31, 2012
and, in the Company’s judgment, uncertainties related to similar tax matters are reasonably possible of being
resolved during the next twelve months. In addition, the Company has determined that it is reasonably possible
that its existing reserves related to a former subsidiary will be settled during the next twelve months. The effect
of the resolutions of these matters, a portion of which could vary based on the final terms and timing of actual
settlements with taxing authorities, is estimated to be a reduction of recorded unrecognized tax benefits ranging
from $60 million to $110 million, all of which will likely lower the Company’s effective tax rate. The Company
does not otherwise currently anticipate that its reserves related to uncertain income tax positions as of
December 31, 2012 will significantly increase or decrease during the twelve-month period ended December 31,
2013; however, various events could cause the Company’s current expectations to change in the future.
The Company and its subsidiaries file income tax returns in the U.S. and various state and local and foreign
jurisdictions. The Internal Revenue Service (“IRS”) is currently conducting an examination of the Company’s
U.S. income tax returns for the 2005 through 2007 period.
86