Visa 2011 Annual Report Download - page 125

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2011
(in millions, except as noted)
At September 30, 2011 and 2010, the Company's total gross unrecognized tax benefits were $850 million and $545 million, respectively, exclusive of
interest and penalties described below. Included in the $850 million and $545 million are $696 million and $443 million of unrecognized tax benefits,
respectively, that if recognized, would reduce the effective tax rate in a future period.
A reconciliation of beginning and ending unrecognized tax benefits by fiscal year is as follows:
2011 2010
(in millions)
Beginning balance at October 1 $ 545 $ 439
Increases of unrecognized tax benefits related to prior years 206 65
Decreases of unrecognized tax benefits related to prior years (52) —
Increases of unrecognized tax benefits related to current year 158 44
Reductions to unrecognized tax benefits related to lapsing statute of limitations (7) (3)
Ending balance at September 30 $ 850 $ 545
It is the Company's policy to account for interest expense and penalties related to uncertain tax positions as interest expense, and general and
administrative, respectively, in its consolidated statements of operations. In fiscal 2011, 2010 and 2009, the Company recognized $7 million, $37 million and
$17 million of interest expense, respectively, related to uncertain tax positions in its consolidated statements of operations. In fiscal 2011, the Company
reversed $2 million of penalties upon the effective settlement of uncertainties surrounding the timing of certain deductions. In fiscal 2010 and 2009, the
Company recognized $5 million and $4 million of penalties, respectively. At September 30, 2011 and 2010, the Company had accrued interest of $65 million
and $58 million, respectively, and accrued penalties of $8 million and $10 million, respectively, related to uncertain tax positions in its other long-term
liabilities.
The Company's fiscal 2006, 2007 and 2008 U.S. federal income tax returns are currently under examination by the Internal Revenue Service (IRS). The
most significant areas being examined by the IRS include transfer pricing, deduction for covered litigation and research and development tax credits. The
timing of the final resolution of the tax examination is uncertain. As such, it is not reasonably possible to estimate the impact that the final outcome could
have on the Company's unrecognized tax benefits in the next 12 months. Except for certain outstanding refund claims, the federal statutes of limitations
expired for fiscal years prior to fiscal 2006. The Company is also subject to examinations by various state and foreign tax authorities. The Company has
concluded all California income tax matters for years through fiscal 2003. All material state and foreign tax matters have been concluded for years through
fiscal 2002.
Note 21—Legal Matters
The Company is party to various legal and regulatory proceedings. Some of these proceedings involve complex claims that are subject to substantial
uncertainties and unascertainable damages. Accordingly, except as disclosed, the Company has not established reserves or ranges of possible loss related to
these proceedings, as at this time in the proceedings, the matters do not relate to a probable loss and/or amounts are not reasonably estimable. Although the
Company believes that it has strong defenses for the litigation and regulatory proceedings described below, it could in the future incur
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