American Home Shield 2008 Annual Report Download - page 94

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 6. Income Taxes
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the adoption of FIN 48, the Company recorded a $0.8 million increase
in the liability for certain tax items and a corresponding reduction to the January 1, 2007 balance of retained earnings. As of December 31, 2008 and 2007, the
Company has $14.2 million and $13.3 million, respectively, of tax benefits primarily reflected in state tax returns that have not been recognized for financial
reporting purposes ("unrecognized tax benefits"). Included in the balance of unrecognized tax benefits at December 31, 2007 were $0.4 million of tax benefits
that, if recognized, would have affected the effective tax rate and $12.9 million that would have been recorded as a purchase accounting adjustment to
goodwill. As noted earlier, the FASB issued FAS 141(R) in December 2007 and is effective for fiscal years beginning after December 15, 2008. Under
FAS 141(R), the reversal of pre-acquisition FIN 48 liabilities will no longer be recorded as an adjustment to goodwill. At December 31, 2008, $14.2 million
of unrecognized tax benefits would impact the effective tax rate if recognized. A reconciliation of the beginning and ending amount of gross unrecognized tax
benefits is as follows:
Successor
Predecessor
(In millions)
Year Ended
Dec. 31, 2008
Jul. 25, 2007 to
Dec. 31,2007
Jan. 1, 2007 to
Jul. 24, 2007
Gross unrecognized tax benefits at beginning of period 13.3 15.9 18.4
Increases in tax positions for prior years 3.6 — —
Decreases in tax positions for prior years (3.1) (1.4) (0.1)
Increases in tax positions for current year 1.3 0.5 2.9
Settlements — (1.2) —
Lapse in statute of limitations (0.9) (0.5) (5.3)
Gross unrecognized tax benefits at end of period 14.2 13.3 15.9
Up to $5.1 million of the Company's unrecognized tax benefits could be recognized within the next twelve months. As a result of the closing of certain
federal and state audits and the expiration of statutes of limitation, the Company recognized approximately $4.0 million of its unrecognized tax benefits
during the year ended December 31, 2008.
The Company files consolidated and separate income tax returns in the United States federal jurisdiction and in many state and foreign jurisdictions. The
Company has been audited by the United States Internal Revenue Service ("IRS") through its short period return ended July 24, 2007, and is no longer subject
to state and local or foreign income tax examinations by tax authorities for years before 2001.
In the ordinary course of business, the Company is subject to review by domestic and foreign taxing authorities. For U.S. federal income tax purposes,
the Company participates in the IRS's Compliance Assurance Process whereby its U.S. federal income tax returns are reviewed by the IRS both prior to and
after their filing. The U.S. federal income tax returns filed by the Company through the period ended July 24, 2007, have been audited by the IRS. In the
second quarter and the fourth quarter of 2008, the IRS completed the audits of the Company's tax returns for 2006 and July 24, 2007, respectively, with no
adjustments or additional payments. The IRS commenced examinations of the Company's U.S. federal income tax returns for 2008 in the first quarter of 2008.
The examination is anticipated to be completed by the end of 2009. Four state tax authorities are in the
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