UPS 2014 Annual Report Download - page 119

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
107
The following table summarizes the activity related to our unrecognized tax benefits (in millions):
Tax Interest Penalties
Balance at January 1, 2012 $ 252 $ 73 $ 3
Additions for tax positions of the current year 13 — —
Additions for tax positions of prior years 7 9 1
Reductions for tax positions of prior years for:
Changes based on facts and circumstances (22)(18)—
Settlements during the period (3)(7)—
Lapses of applicable statute of limitations (15)(4)—
Balance at December 31, 2012 232 53 4
Additions for tax positions of the current year 15 — —
Additions for tax positions of prior years 20 9 2
Reductions for tax positions of prior years for:
Changes based on facts and circumstances (67)(23)(1)
Settlements during the period (8)1—
Lapses of applicable statute of limitations (1)— (1)
Balance at December 31, 2013 191 40 4
Additions for tax positions of the current year 15 — —
Additions for tax positions of prior years 51 13 —
Reductions for tax positions of prior years for:
Changes based on facts and circumstances (74)(8)—
Settlements during the period (10)(2)—
Lapses of applicable statute of limitations (1)(1)(1)
Balance at December 31, 2014 $ 172 $ 42 $ 3
The total amount of gross unrecognized tax benefits as of December 31, 2014, 2013 and 2012 that, if recognized, would
affect the effective tax rate was $166, $185 and $224 million, respectively. We also had gross recognized tax benefits of $54,
$281 and $280 million recorded as of December 31, 2014, 2013 and 2012, respectively, associated with outstanding refund
claims for prior tax years. We had a net payable recorded with respect to prior years’ income tax matters in the accompanying
consolidated balance sheets as of December 31, 2014, and a net receivable recorded with respect to prior years’ income tax
matters as of December 31, 2013 and 2012. We have also recognized a receivable for interest of $4, $25 and $23 million for the
recognized tax benefits associated with outstanding refund claims as of December 31, 2014, 2013 and 2012, 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 2010.
In June 2011, we received an IRS Revenue Agent Report ("RAR") covering income taxes for tax years 2005 through
2007. The income tax RAR proposed adjustments related to the value of acquired software and intangibles, research credit
expenditures, and the amount of deductible costs associated with our British Pound Sterling Notes exchange offer completed in
May 2007. Receipt of the RAR represents only the conclusion of the examination process. We disagreed with some of the
proposed adjustments related to these matters. Therefore, we filed protests and, in the third quarter of 2011, the IRS responded
to our protests and forwarded the case to IRS Appeals.
In July 2013, we began resolution discussions with IRS Appeals on the income tax matters. In the second quarter of 2014,
we reached a final resolution with IRS Appeals on all income tax matters for the 2005 through 2007 tax years and received a net
refund of tax and interest totaling $145 million during the second quarter of 2014. The resolution of these matters and
subsequent refund of tax and interest did not have a material impact on net income.