eTrade 2012 Annual Report Download - page 159

Non-current tax expense relates to tax expense associated with the reserves for uncertain tax positions. The
federal deferred income tax benefit and tax expense recognized for uncertain tax positions in 2012, was driven
primarily by amended tax returns that were filed during 2012 related to additional tax deductions on the 2009
Debt Exchange. The rest of the federal deferred income tax benefit in 2012 was driven by the loss incurred
during the year.
The following table presents the components of income (loss) before income tax expense (benefit) for the
years ended December 31, 2012, 2011 and 2010 (dollars in thousands):
Year Ended December 31,
2012 2011 2010
Domestic $(135,432) $181,959 $ 7,426
Foreign 4,468 3,371 (10,567)
Income (loss) before income tax expense (benefit) $(130,964) $185,330 $ (3,141)
Unrecognized Tax Benefits
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax
benefits for the years ended December 31, 2012, 2011 and 2010 (dollars in thousands):
Year Ended December 31,
2012 2011 2010
Unrecognized tax benefits, beginning of period $377,405 $281,666 $ 58,696
Additions based on tax positions related to prior years 130,443 4,174 165,834
Additions based on tax positions related to current year 8,425 152,497 62,752
Reductions based on tax positions related to prior years (23,167) (59,315) (1,517)
Settlements with taxing authorities (99) (422) (3,448)
Statute of limitations lapses (1,034) (1,195) (651)
Unrecognized tax benefits, end of period $491,973 $377,405 $281,666
The unrecognized tax benefit increased $114.6 million to $492.0 million during the year ended
December 31, 2012. The majority of additional unrecognized tax benefit recorded during 2012 is due to amended
tax returns filed related primarily to additional tax deductions on the 2009 Debt Exchange. At December 31,
2012, $247.3 million (net of federal benefits on state issues) represents the amount of unrecognized tax benefits
that, if recognized, would favorably impact the effective income tax rate in future periods.
In 2012, the Internal Revenue Service sent an examination notification to the Company related to its 2009
and 2010 federal tax returns. While the Company cannot predict the outcome of the examination, it believes that
adequate provision has been made for any of the Company’s uncertain tax positions. Uncertain tax positions are
only recognized to the extent they satisfy the accounting for uncertain tax positions criteria included in the
income taxes accounting guidance, which states that in order to recognize an uncertain tax position it must be
more likely than not that it will be sustained upon examination. For uncertain tax positions, tax benefit is
recognized for positions in which it is more than fifty percent likely of being sustained on effective settlement.
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