eTrade 2008 Annual Report Download - page 138

reduction to the beginning balance of retained earnings. The total amount of gross unrecognized tax benefits as of
January 1, 2007 was $150.4 million. Of this total amount at January 1, 2007, $51.6 million (net of the federal
benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in future periods. A reconciliation of the beginning and ending amount of
unrecognized tax benefits as of December 31, 2007 and 2008 is as follows (dollars in thousands):
Balance at January 1, 2007 $ 150,428
Additions based on tax positions related to prior years 1,402
Additions based on tax positions related to the current year 8,687
Reductions based on tax positions related to prior years (136)
Reductions based on tax positions related to the current year (79,551)
Settlements with taxing authorities (5,472)
Statute of limitations lapses (505)
Balance at December 31, 2007 $ 74,853
Additions based on tax positions related to prior years 1,320
Additions based on tax positions related to the current year 18,232
Reductions based on tax positions related to prior years (8,299)
Reductions based on tax positions related to the current year (2,240)
Settlements with taxing authorities (4,869)
Statute of limitations lapses (14,342)
Balance at December 31, 2008 $ 64,655
At December 31, 2008 and 2007, the unrecognized tax benefit was $64.7 million and $74.9 million,
respectively. At December 31, 2008, $37.8 million (net of federal benefits on state issues) represents the amount
of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax in future periods.
The following table summarizes the tax years that are either currently under examination or remain open
under the statute of limitations and subject to examination by the major tax jurisdictions in which the Company
operates:
Jurisdiction Open Tax Year
Hong Kong 2002 – 2008
United Kingdom 2005 – 2008
United States 2005 – 2008
Various States(1) 1999 – 2008
(1) Includes California, Georgia, Illinois, New Jersey, New York and Virginia.
It is likely that certain examinations may be settled or the statute of limitations could expire with regards to
other tax filings, in the next twelve months. In addition, proposed legislation could favorably impact certain of
the Company’s unrecognized tax benefits. Such events would generally reduce the Company’s unrecognized tax
benefits, either because the tax positions are sustained or because the Company agrees to the disallowance, by as
much as $5.0 million, all of which could affect the Company’s total tax provision or the effective tax rate.
The Company’s practice is to recognize interest and penalties, if any, related to income tax matters in
income tax expense. After the adoption of FIN 48, the Company has total gross reserves for interest and penalties
of $5.9 million and $8.6 million as of December 31, 2008 and 2007, respectively. The tax benefit for the year
ended December 31, 2008 includes a reduction in the accrual for interest of $2.7 million, principally related to
the expiration of statute of limitations for the tax year ended December 31, 2004.
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