Waste Management 2008 Annual Report Download - page 118
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Please find page 118 of the 2008 Waste Management annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Tax audit settlements — The Company and its subsidiaries file income tax returns in the United States and
Puerto Rico, as well as various state and local jurisdictions and Canada. We are currently under audit by the IRS and
from time to time we are audited by other taxing authorities. Our audits are in various stages of completion.
During 2008, we settled IRS audits for the 2006 and 2007 tax years as well as various state tax audits. In
addition, we settled Canadian audits for the tax years 2002 through 2005. The settlement of these tax audits resulted
in a reduction to our provision for income taxes of $26 million, or $0.05 per diluted share, for the year ended
December 31, 2008.
During 2007, we settled an IRS audit for the tax years 2004 and 2005 and various state tax audits, resulting in a
reduction in income tax expense of $40 million, or $0.08 per diluted share. Our 2007 net income was also increased
by $1 million due to interest income recognized from audit settlements. During 2006, we completed the IRS audit
for the years 2002 and 2003. The settlement of the IRS audit, as well as other state and foreign tax audit matters,
resulted in a reduction in our 2006 provision for income taxes (excluding the effects of related interest income) of
$149 million, or $0.27 per diluted share. Our 2006 net income also increased by $14 million, or $9 million net of tax,
principally due to interest income from audit settlements. The reduction in income taxes recognized as a result of
these settlements is primarily due to the associated reduction in our long-term accrued tax liabilities. Our recorded
liabilities associated with uncertain tax positions are discussed below.
We are currently in the examination phase of an IRS audit for the 2008 tax year, and expect this audit to be
completed within the next 12 months. Audits associated with state and local jurisdictions date back to 1999 and
Canadian examinations date back to 1998.
Non-conventional fuel tax credits — The favorable impact of non-conventional fuel tax credits on our 2007
and 2006 effective tax rates was derived from our investments in two coal-based, synthetic fuel production facilities
and our landfill gas-to-energy projects. The fuel generated from the facilities and our landfill gas-to-energy projects
qualified for tax credits through 2007 under Section 45K of the Internal Revenue Code.
The tax credits were subject to a phase-out if the price of crude oil exceeded an annual average price threshold
determined by the Internal Revenue Service. As of December 31, 2007, our estimate of the 2007 phase-out rate was
69%. In April 2008, the IRS published the phase-out percentage that must be applied to Section 45K tax credits
generated in 2007, which was approximately 67%. As of December 31, 2006, we had estimated that 36% of
Section 45K tax credits generated during 2006 would be phased out. In April 2007, the IRS established the final
phase-out of Section 45K credits generated during 2006 at approximately 33%.
Our minority ownership interests in the facilities resulted in the recognition of our pro-rata share of the
facilities’ losses, the amortization of our investments, and additional expense associated with other estimated
obligations all being recorded as “Equity in net losses of unconsolidated entities” within our Consolidated
Statements of Operations.
The following table summarizes the impact of our investments in the facilities on our Consolidated Statements
of Operations (in millions):
2008 2007 2006
Years Ended December 31,
Equity in net losses of unconsolidated entities(a) .................... $ 3 $42 $41
Interest expense ............................................ — 1 4
Loss before income taxes(a) ................................... 3 43 45
Benefit from income taxes(a), (b) ............................... 4 53 64
Net income(a) ............................................. $ 1 $10 $19
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WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)