Western Union 2009 Annual Report Download - page 116

the Company, are eligible to be examined for the years 2002 through 2006. The Company’s United States
federal income tax returns since the Spin-off are also eligible to be examined. The United States Internal
Revenue Service (“IRS”) has issued a report of the results of its examination of the United States federal
consolidated income tax return of First Data for 2002, and the Company believes that the resolution of the
adjustments that affect the Company proposed in the report will not result in a material change to the
Company’s financial position. In addition, the IRS completed its examination of the United States federal
consolidated income tax returns of First Data for 2003 and 2004, which included the Company, and issued a
Notice of Deficiency in December 2008. The Notice of Deficiency alleges significant additional taxes, interest
and penalties owed with respect to a variety of adjustments involving the Company and its subsidiaries, and
the Company generally has responsibility for taxes associated with these potential Company-related
adjustments under the tax allocation agreement with First Data executed at the time of the Spin-off. The
Company agrees with a number of the adjustments in the Notice of Deficiency; however, the Company does
not agree with the Notice of Deficiency regarding several substantial adjustments representing total alleged
additional tax and penalties due of approximately $114 million. As of December 31, 2009, interest on the
alleged amounts due for unagreed adjustments would be approximately $30 million. A substantial part of the
alleged amounts due for these unagreed adjustments relates to the Company’s international restructuring,
which took effect in the fourth quarter 2003, and, accordingly, the alleged amounts due related to such
restructuring largely are attributable to 2004. On March 20, 2009, the Company filed a petition in the United
States Tax Court contesting those adjustments with which it does not agree. The Company believes its overall
reserves are adequate, including those associated with the adjustments alleged in the Notice of Deficiency. If
the IRS’ position in the Notice of Deficiency is sustained, the Company’s tax provision related to 2003 and
later years would materially increase. The IRS has now commenced an examination of the United States
federal consolidated income tax returns of First Data that cover the Company’s 2005 and pre-spin-off 2006
taxable periods and also has commenced an examination of the Company’s federal consolidated income tax
return for the post-spin-off 2006 period. The Irish income tax returns of certain subsidiaries for the years 2005
and forward are eligible to be examined by the Irish tax authorities, although no examinations have
commenced.
At December 31, 2009, no provision had been made for United States federal and state income taxes on
foreign earnings of approximately $2.0 billion, which are expected to be reinvested outside the United States
indefinitely. Upon distribution of those earnings to the United States in the form of actual or constructive
dividends, the Company would be subject to United States income taxes (subject to an adjustment for foreign
tax credits), state income taxes and possible withholding taxes payable to various foreign countries.
Determination of this amount of unrecognized deferred United States tax liability is not practicable because of
the complexities associated with its hypothetical calculation.
Tax Allocation Agreement with First Data
The Company and First Data each are liable for taxes imposed on their respective businesses both prior
to and after the Spin-off. If such taxes have not been appropriately apportioned between First Data and the
Company, subsequent adjustments may occur that may impact the Company’s financial position or results of
operations.
Also under the tax allocation agreement, with respect to taxes and other liabilities that result from a final
determination that is inconsistent with the anticipated tax consequences of the Spin-off (as set forth in the
private letter ruling and relevant tax opinion), (“Spin-off Related Taxes”), the Company will be liable to First
Data for any such Spin-off Related Taxes attributable solely to actions taken by or with respect to the
Company. In addition, the Company will also be liable for 50% of any Spin-off Related Taxes (i) that would
not have been imposed but for the existence of both an action by the Company and an action by First Data or
(ii) where the Company and First Data each take actions that, standing alone, would have resulted in the
imposition of such Spin-off Related Taxes. The Company may be similarly liable if it breaches certain
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THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)