US Cellular 2010 Annual Report Download - page 59

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 INCOME TAXES (Continued)
At December 31, 2010 and 2009, U.S. Cellular had $32.5 million and $34.4 million, respectively, in
unrecognized tax benefits. If these benefits were recognized, they would have reduced income tax
expense in 2010 and 2009 by $21.1 million and $18.9 million, respectively, net of the federal benefit from
state income taxes.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(Dollars in thousands) 2010 2009 2008
Balance at January 1, ...................................... $34,442 $27,786 $33,890
Additions for tax positions of current year ...................... 5,119 4,966 4,858
Additions for tax positions of prior years ....................... 550 3,114 692
Reductions for tax positions of prior years ...................... (1,560) (1,399) (5,320)
Reductions for settlements of tax positions ..................... (5,938) — (3,177)
Reductions for lapses in statutes of limitations ................... (66) (25) (3,157)
Balance at December 31, ................................... $32,547 $34,442 $27,786
Unrecognized tax benefits are included in Accrued taxes and Other deferred liabilities and credits in the
Consolidated Balance Sheet.
As of December 31, 2010, U.S. Cellular believes it is reasonably possible that unrecognized tax benefits
could decrease by approximately $7.0 million in the next twelve months. The nature of the uncertainty
primarily relates to state income tax positions and the expiration of statutes of limitation.
U.S. Cellular recognizes accrued interest and penalties related to unrecognized tax benefits in income tax
expense. The amounts charged to income tax expense related to interest and penalties totaled
$3.0 million, $2.1 million and $4.4 million in 2010, 2009 and 2008, respectively. Accrued interest and
penalties were $19.3 million and $15.7 million at December 31, 2010 and 2009, respectively.
U.S. Cellular is included in TDS’ consolidated federal income tax return. U.S. Cellular also files various
state and local income tax returns. The TDS consolidated group remains subject to federal income tax
audits for the tax years after 2007.
In conjunction with an Internal Revenue Service (‘‘IRS’’) audit of the TDS consolidated group’s federal
income tax returns for the tax years 2002 through 2005, TDS made a $38 million deposit with the IRS in
2009 related to an initial proposed assessment made by the IRS related to a specific tax position. U.S.
Cellular then paid TDS a $34 million deposit in 2009, which represented U.S. Cellular’s proportionate
share of the TDS deposit. The purpose of the deposit was to eliminate any potential interest expense
subsequent to the deposit. The IRS subsequently conceded the specific tax position, and after closure of
the IRS audit for the tax years 2002 through 2005, the IRS returned this $38 million deposit to TDS in
2010, and TDS also returned U.S. Cellular’s $34 million deposit in 2010.
NOTE 5 VARIABLE INTEREST ENTITIES (VIEs)
From time to time, the FCC conducts auctions through which additional spectrum is made available for
the provision of wireless services. U.S. Cellular participated in spectrum auctions indirectly through its
interests in Aquinas Wireless L.P. (‘‘Aquinas Wireless’’), King Street Wireless L.P. (‘‘King Street Wireless’’),
Barat Wireless L.P. (‘‘Barat Wireless’’) and Carroll Wireless L.P. (‘‘Carroll Wireless’’), collectively, the
‘‘limited partnerships.’’ Each limited partnership participated in and was awarded spectrum licenses in
one of four separate spectrum auctions (FCC Auctions 78, 73, 66 and 58). Each limited partnership
qualified as a ‘‘designated entity’’ and thereby was eligible for bidding credits with respect to licenses
purchased in accordance with the rules defined by the FCC for each auction. In most cases, the bidding
credits resulted in a 25% discount from the gross winning bid.
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