Amazon.com 2011 Annual Report Download - page 76

The reconciliation of our tax contingencies is as follows:
December 31,
2011 2010 2009
(in millions)
Gross tax contingencies—January 1 ............................................ $213 $181 $166
Gross increases to tax positions in prior periods ................................... 22 31 15
Gross decreases to tax positions in prior periods .................................. (3) (1) 0
Gross increases to current period tax positions ....................................451
Audit settlements paid ....................................................... (1) (3) 0
Lapse of statute of limitations ................................................. (6) 0 0
Foreign exchange gain (loss) on tax contingencies ................................. 0 0 (1)
Gross tax contingencies—December 31 (1) ...................................... $229 $213 $181
(1) As of December 31, 2011, we had $229 million of tax contingencies all of which, if fully recognized, would
decrease our effective tax rate.
As of December 31, 2011 and 2010, we had accrued interest and penalties, net of federal income tax benefit,
related to tax contingencies of $24 million and $21 million. Interest and penalties, net of federal income tax
benefit, recognized for the year ended December 31, 2011 and 2010 was $3 million and $4 million.
We are under examination, or may be subject to examination, by the Internal Revenue Service (“IRS”) for
the calendar year 2005 or thereafter. These examinations may lead to ordinary course adjustments or proposed
adjustments to our taxes or our net operating losses. In addition, while we have not yet received a Revenue
Agent’s Report generally issued at the conclusion of an IRS examination, we have received Notices of Proposed
Adjustment from the IRS for the 2005 and 2006 calendar years relating to transfer pricing with our foreign
subsidiaries. The notices propose an increase to our U.S. taxable income that would result in additional federal
tax expense over a seven year period beginning in 2005, totaling approximately $1.5 billion, subject to interest.
We disagree with the proposed adjustments and intend to vigorously contest them. If we are not able to resolve
these proposed adjustments at the IRS examination level, we plan to pursue all available administrative and, if
necessary, judicial remedies. Certain of our subsidiaries are under examination or investigation or may be subject
to examination or investigation by the French Tax Administration for the calendar year 2006 or thereafter. We
are also subject to taxation in various states and other foreign jurisdictions including China, Germany, Japan,
Luxembourg, and the United Kingdom. We are or may be subject to examination by these particular tax
authorities for the calendar year 2003 or thereafter.
Due to the nature of our business operations, we expect the total amount of tax contingencies for prior
period positions will grow in 2012 in comparable amounts to 2011. Also, changes in state, federal, and foreign
tax laws may increase our tax contingencies. The timing of the resolution of income tax examinations is highly
uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities
may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive
additional assessments by various tax authorities or possibly reach resolution of income tax examinations in one
or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies
related to positions on tax filings in years through 2011. The actual amount of any change could vary
significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an
estimate of the range of possible outcomes.
Note 11—SEGMENT INFORMATION
We have organized our operations into two principal segments: North America and International. We
present our segment information along the same lines that our chief executive reviews our operating results in
assessing performance and allocating resources.
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