Western Union 2011 Annual Report Download - page 124

THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
unrecognized tax benefits during the year ended December 31, 2011 is substantially attributable to the settlement
with the IRS discussed above. The unrecognized tax benefits accrual as of December 31, 2011, consists of
federal, state and foreign tax matters.
The Company and its subsidiaries file tax returns for the United States, for multiple states and localities, and
for various non-United States jurisdictions, and the Company has identified the United States and Ireland as its
two major tax jurisdictions. The United States federal income tax returns of First Data, which include the
Company, are eligible to be examined for the years 2003 through 2006. The Company’s United States federal
income tax returns since the Spin-off are also eligible to be examined. 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 alleged 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. A
substantial part of the alleged amounts due related to the Company’s international restructuring, which took
effect in the fourth quarter of 2003. In December 2011, the Company reached an agreement with the IRS
resolving substantially all of the issues related to the Company’s restructuring of its international operations in
2003, as noted above. 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 is ongoing, as is an examination of the
Company’s United States federal consolidated income tax returns for the 2006 post-Spin-off period through
2009. The Irish income tax returns of certain subsidiaries for the years 2007 and forward are eligible to be
examined by the Irish tax authorities, although no examinations have commenced.
In the first quarter of 2010, the Company made a $250 million tax deposit relating to United States federal tax
liabilities, including those arising from the Company’s 2003 international restructuring, which have been
previously accrued in the Company’s consolidated financial statements. The deposit was recorded as a reduction
to “Income taxes payable” in the Consolidated Balance Sheets and a decrease in cash flows from operating
activities in the Consolidated Statement of Cash Flows. Making the deposit limits the further accrual of interest
charges with respect to such tax liabilities, to the extent of the deposit.
As of December 31, 2011, no provision had been made for United States federal and state income taxes on
certain of the Company’s outside tax basis differences, which primarily relate to accumulated foreign earnings of
approximately $3.7 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. Such taxes could be significant.
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 condition 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
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