Western Union 2012 Annual Report Download - page 37

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Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to impose tax)
are subject to review and audit by federal, state, local and international taxing authorities. An unfavorable outcome to a tax audit
could result in higher tax expense, thereby negatively impacting our results of operations. We have established contingency reserves
for a variety of material, known tax exposures. As of December 31, 2012, the total amount of unrecognized tax benefits was a
liability of $111.9 million, including accrued interest and penalties, net of related benefits. Our reserves reflect our judgment as
to the resolution of the issues involved if subject to judicial review. While we believe that 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 our related reserve, and such resolution could have a material effect on our effective tax
rate, financial condition, results of operations and cash flows in the current period and/or future periods. 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 the Company's tax
position as recorded in the financial statements and the final resolution of a tax issue during the period. Such resolution could
increase or decrease income tax expense in our consolidated financial statements in future periods and could impact our operating
cash flows. For example, in 2011, we reached an agreement with the United States Internal Revenue Service (“IRS”) resolving
substantially all of the issues related to the restructuring of our international operations in 2003, which resulted in a tax benefit of
$204.7 million related to the adjustment of reserves associated with this matter and requires cash payments to the IRS and various
state tax authorities of approximately $190 million, of which $92.4 million was paid in 2012. See the “Capital Resources and
Liquidity” discussion in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
The IRS completed its examination of the United States federal consolidated income tax returns of First Data, which include
our 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 our 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 (“WU 30-Day Letter”). Both the FDC 30-Day Letter and the WU 30-
Day Letter propose tax adjustments affecting us, some of which are agreed and some of which are unagreed. We filed our protest
on November 28, 2012 related to the unagreed proposed adjustments with the IRS Appeals Division. See Part II, Item 8, Financial
Statements and Supplementary Data, Note 10, “Income Taxes” for a further discussion of this matter.
We receive services from third-party vendors that would be difficult to replace if those vendors ceased providing such services
which could cause temporary disruption to our business.
Some services relating to our business, such as software application support, the development, hosting and maintenance of
our operating systems, check clearing, and processing of returned checks are outsourced to third-party vendors, which would be
difficult to replace quickly. If our third-party vendors were unwilling or unable to provide us with these services in the future, our
business and operations could be adversely affected.