Western Union 2015 Annual Report Download - page 227

THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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The United States Internal Revenue Service ("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 ("IRS Agreement"). As a result of the IRS Agreement, the Company
expects to make cash payments of approximately $190 million, plus additional accrued interest, of which $94.1 million has been
paid as of December 31, 2015. A substantial majority of these payments were made in the year ended December 31, 2012. The
Company expects to pay the remaining amount in 2016 and beyond. 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 ("WU 30-Day Letter"). Both the FDC 30-Day Letter and the WU 30-Day Letter propose tax adjustments affecting
the Company, some of which are agreed and some of which are unagreed. Both First Data and the Company filed their respective
protests with the IRS Appeals Division on November 28, 2012 related to the unagreed proposed adjustments. Discussions with
the IRS concerning these adjustments are ongoing. The Company believes its reserves are adequate with respect to both the agreed
and unagreed adjustments.
As of December 31, 2015, no provision has 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 $6.1 billion,
which have been reinvested and are expected to continue to be reinvested outside the United States indefinitely. Over the last
several years, such earnings have been used to pay for the Company's international acquisitions and operations and provide initial
Company funding of global principal payouts for Consumer-to-Consumer and Business Solutions transactions. 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 United States deferred
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 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 half 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 representations or covenants set forth in the tax
allocation agreement. If the Company is 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 the Company's business, financial condition and results of operations.
First Data generally will be liable for all Spin-off Related Taxes, other than those described above.
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