UPS 2010 Annual Report Download - page 115

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Undistributed earnings of our non-U.S. subsidiaries amounted to approximately $2.725 billion at
December 31, 2010. Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. federal
or state deferred income taxes have been provided thereon. Upon distribution of those earnings in the form of
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, 2008 ............................................... $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
Additions for tax positions of the current year ................................ 16 — —
Additions for tax positions of prior years .................................... 45 25 2
Reductions for tax positions of prior years for:
Changes based on facts and circumstances ............................... (27) (10) (3)
Settlements during the period ......................................... (6) (3) —
Lapses of applicable statute of limitations ............................... (10) (3) —
Balance at December 31, 2010 ............................................ $284 $ 95 $ 7
The total amount of gross unrecognized tax benefits as of December 31, 2010, 2009 and 2008 that, if
recognized, would affect the effective tax rate was $283, $243, and $206 million, respectively. We also had gross
recognized tax benefits of $326, $329, and $583 million recorded as of December 31, 2010, 2009 and 2008,
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 consolidated balance sheets.
Additionally, we have recognized a receivable for interest of $32, $56, and $135 million for the recognized tax
benefits associated with outstanding refund claims as of December 31, 2010, 2009 and 2008, 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
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