UPS 2009 Annual Report Download - page 111

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
dividends or otherwise, we would be subject to U.S. income taxes and withholding taxes payable in various
non-U.S. jurisdictions, which could potentially be offset by foreign tax credits. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its
hypothetical calculation.
The following table summarizes the activity related to our unrecognized tax benefits (in millions):
Tax Interest Penalties
Balance at January 1, 2007 ............................................... $373 $ 88 $ 6
Additions for tax positions of the current year ................................ 13 — —
Additions for tax positions of prior years .................................... 34 13 2
Reductions for tax positions of prior years for:
Changes based on facts and circumstances ............................... (12) 9 —
Settlements during the period ......................................... (49) (34) (2)
Lapses of applicable statute of limitations ............................... (4) (1) —
Balance at December 31, 2007 ............................................ $355 $ 75 $ 6
Additions for tax positions of the current year ................................ 28 — 1
Additions for tax positions of prior years .................................... 63 33 5
Reductions for tax positions of prior years for:
Changes based on facts and circumstances ............................... (46) (9) (2)
Settlements during the period ......................................... (9) (2) —
Lapses of applicable statute of limitations ............................... (3) — —
Balance at December 31, 2008 ............................................ $388 $ 97 $ 10
Additions for tax positions of the current year ................................ 41 — —
Additions for tax positions of prior years .................................... 76 27 2
Reductions for tax positions of prior years for:
Changes based on facts and circumstances ............................... (214) (34) (3)
Settlements during the period ......................................... (23) (4) —
Lapses of applicable statute of limitations ............................... (2) — (1)
Balance at December 31, 2009 ............................................ $266 $ 86 $ 8
The total amount of gross unrecognized tax benefits as of December 31, 2009, 2008 and 2007 that, if
recognized, would affect the effective tax rate was $243, $206 and $189 million, respectively. We also had gross
recognized tax benefits of $329, $583 and $567 million recorded as of December 31, 2009, 2008 and 2007,
respectively, associated with outstanding refund claims for prior tax years. Therefore, we had a net receivable
recorded with respect to prior year income tax matters in the accompanying balance sheets. Additionally, we
have recognized a receivable for interest of $56, $135 and $116 million for the recognized tax benefits associated
with outstanding refund claims as of December 31, 2009, 2008 and 2007, respectively. Our continuing practice is
to recognize interest and penalties associated with income tax matters as a component of income tax expense.
We file income tax returns in the U.S. federal jurisdiction, most U.S. state and local jurisdictions, and many
non-U.S. jurisdictions. We have substantially resolved all U.S. federal income tax matters for tax years prior to
2003. During the third quarter of 2009, we received a refund of $271 million as a result of the resolution of tax
years 1999 through 2002 with the Internal Revenue Service (“IRS”) Appeals Office. For the tax years 2003
through 2004, we anticipate concluding the limited number of unagreed issues with the IRS Appeals Office by
the end of the second quarter of 2010. Along with the audit for tax years 2005 through 2007, the IRS is currently
examining non-income based taxes, including employment and excise taxes, which could lead to proposed
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