Western Union 2009 Annual Report Download - page 79
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Description Judgments and Uncertainties
Effect if Actual Results Differ from
Assumptions
Income tax contingencies
We recognize the tax benefit from an
uncertain tax position only when it is
more likely than not, based on the
technical merits of the position, that
the tax position will be sustained upon
examination, including the resolution
of any related appeals or litigation.
The tax benefits recognized in the
consolidated financial statements from
such a position are measured as the
largest benefit that has a greater than
fifty percent likelihood of being
realized upon ultimate resolution.
We have established contingency
reserves for material, known tax
exposures, including potential tax audit
adjustments with respect to our
international operations, which were
restructured in 2003. Our tax reserves
reflect management’s judgment as to
the resolution of the issues involved if
subject to judicial review. While we
believe our reserves are adequate to
cover reasonably expected tax risks,
there can be no assurance that, in all
instances, an issue raised by a tax
authority will be resolved at a
financial cost that does not exceed its
related reserve. With respect to these
reserves, our income tax expense
would include (i) any changes in tax
reserves arising from material changes
during the period in the facts and
circumstances (i.e., new information)
surrounding a tax issue and (ii) any
difference from our tax position as
recorded in the financial statements
and the final resolution of a tax issue
during the period.
The Internal Revenue Service (“IRS”)
has completed audits of the United
States federal consolidated income tax
returns of First Data for the years
2002 through 2004, which include our
taxable results for those years. Refer
to Note 10 to our consolidated
financial statements for a detailed
discussion of these audits.
Pursuant to the tax allocation
agreement signed in connection with
the Spin-off from First Data, we
believe we have appropriately
apportioned the taxes between First
Data and us.
Our tax contingency reserves for our
uncertain tax positions as of December
31, 2009 were $522.7 million,
including interest and penalties. While
we believe that our reserves are
adequate to cover reasonably expected
tax risks, in the event that the ultimate
resolution of our uncertain tax
positions differ from our estimates,
particularly with respect to our 2003
restructuring of our international
operations, we may be exposed to
material increases in income tax
expense, which could materially
impact our financial position, results
of operations and cash flows.
If we are required to indemnify First
Data for taxes incurred as a result of
the Spin-off being taxable to First
Data, it likely would have a material
adverse effect on our business,
financial position, results of operations
and cash flows.
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