Western Union 2012 Annual Report Download - page 116

THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the amounts
otherwise recognized in the Company's consolidated financial statements, and are reflected in “Income taxes payable” in the
Consolidated Balance Sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest
and penalties, is as follows (in millions):
2012 2011
Balance as of January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123.7 $ 618.7
Increases - positions taken in current period (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 143.1
Increases - positions taken in prior periods (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 34.1
Increases - acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9.7
Decreases - positions taken in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6.1)(27.9)
Decreases - settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24.1)(650.9)
Decreases - lapse of applicable statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.4)(3.1)
Balance as of December 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103.2 $ 123.7
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(a) Includes recurring accruals for issues which initially arose in previous periods.
(b) Changes to positions taken in prior periods relate to changes in estimates used to calculate prior period unrecognized tax
benefits.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $93.5 million and
$115.6 million as of December 31, 2012 and 2011, respectively, excluding interest and penalties.
The Company recognizes interest and penalties with respect to unrecognized tax benefits in “Provision for income taxes” in
its Consolidated Statements of Income, and records the associated liability in “Income taxes payable” in its Consolidated Balance
Sheets. The Company recognized $0.5 million, $(4.0) million, and $6.9 million in interest and penalties during the years ended
December 31, 2012, 2011 and 2010, respectively. The Company has accrued $20.0 million and $20.7 million for the payment of
interest and penalties as of December 31, 2012 and 2011, respectively.
The unrecognized tax benefits accrual as of December 31, 2012 consists of federal, state and foreign tax matters. It is reasonably
possible that the Company's total unrecognized tax benefits will decrease by approximately $25 million during the next 12 months
in connection with various matters which may be resolved.
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 as its major tax jurisdiction, as the income tax imposed
by any one foreign country is not material to the Company. The United States federal income tax returns of First Data, which
include the Company, are eligible to be examined for the years 2005 and 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. 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 a result of the IRS Agreement, the Company expects to make cash payments of approximately $190 million,
of which $92.4 million were made in the year ended December 31, 2012. 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 had 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. The deposit limited the further accrual of interest charges with respect to such tax
liabilities, to the extent of the deposit. The IRS completed its examination of the United States federal consolidated income tax
returns of First Data, which include the Company's 2005 and pre-Spin-off 2006 taxable periods, and issued its report on October
31, 2012 (“FDC 30-Day Letter”). Furthermore, the IRS completed its examination of the Company's United States federal
consolidated income tax returns for the 2006 post-Spin-off period through 2009 and issued its report also on October 31, 2012