eTrade 2010 Annual Report Download - page 151

Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 31, 2010,
2009 and 2008 are as follows (dollars in thousands):
Year Ended December 31,
2010 2009 2008
Unrecognized tax benefits, beginning of period $ 58,696 $64,655 $ 74,853
Additions based on tax positions related to prior years 165,834 2,783 1,320
Additions based on tax positions related to current year 62,752 2,293 18,232
Reductions based on tax positions related to prior years (1,517) (1,229) (8,299)
Reductions based on tax positions related to current year — (8,159) (2,240)
Settlements with taxing authorities (3,448) (681) (4,869)
Statute of limitations lapses (651) (966) (14,342)
Unrecognized tax benefits, end of period $281,666 $58,696 $ 64,655
The unrecognized tax benefit increased $223.0 million to $281.7 million during the year ended
December 31, 2010. The majority of additional unrecognized tax benefit recorded during 2010 related to the
Company’s recapitalization transactions in 2009, including the Debt Exchange, and Section 382 limitations on
federal and state net operating losses. At December 31, 2010, $172.9 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 rate 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 Years
Hong Kong 2001 – 2010
United Kingdom 2007 – 2010
United States 2004 – 2010
Various states(1) 2002 – 2010
(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 $9.7 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. The Company has total gross reserves for interest and penalties of $9.9 million and $7.9
million as of December 31, 2010 and 2009, respectively. The tax benefit for the year ended December 31, 2010
includes an increase in the accrual for interest and penalties of $2.0 million, principally related to the state taxes.
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