American Home Shield 2009 Annual Report Download - page 101

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 6. Income Taxes (Continued)
ended December 31, 2006 and the Predecessor period from January 1, 2007 to July 24, 2007, respectively, with no adjustments or additional payments. In the
first quarter of 2009, the IRS completed the audits of the Company's tax returns for the Successor period from July 25, 2007 to December 31, 2007 with no
adjustments or additional payments. The Company's tax returns for the year ended December 31, 2008 are under audit, which is expected to be completed by
the second quarter of 2010. The IRS commenced examinations of the Company's U.S. federal income tax returns for 2009 in the first quarter of 2009. The
examination is anticipated to be completed by the end of 2010. Six state tax authorities are in the process of auditing state income tax returns of various
subsidiaries. One state audit is at the appeals level.
The Company's policy is to recognize potential interest and penalties related to its tax positions within the tax provision. During the year ended
December 31, 2009, the Company recognized interest expense of $0.6 million through the tax provision. No tax penalties were recorded through the provision
during the year ended December 31, 2009. During the year ended December 31, 2008, the Company recognized interest expense of $0.9 million and penalties
of $0.4 million through the tax provision. During the Successor period from July 25, 2007 to December 31, 2007 and the Predecessor period from January 1,
2007 to July 24, 2007, the Company recognized interest income of $0.3 million and $0.8 million, respectively, through the tax provision, primarily as a result
of the expiration of the statutes of limitation on certain tax positions and favorable state audit settlements. As of December 31, 2009, 2008 and 2007, the
Company had accrued for the payment of interest and penalties of $4.2 million, $3.7 million and $2.4 million, respectively.
The reconciliation of income tax computed at the U.S. federal statutory tax rate to the Company's effective income tax rate for continuing operations is as
follows:
Successor Predecessor
Year Ended
Dec. 31,
Jul. 25, 2007 to
Dec. 31, 2007
Jan. 1, 2007 to
Jul. 24, 2007
2009 2008
Tax at U.S. federal statutory rate 35.0% (35.0)% (35.0)% 35.0%
State and local income taxes, net of U.S. federal benefit (50.9) 2.0 (0.8) 4.3
Tax credits (16.8) (1.3) (0.6) (0.8)
Change in Valuation Allowance (4.3) 5.2 — —
Other, including foreign rate differences, reserves and permanent items (6.0) 5.2 1.3 (1.8)
Effective rate (43.0)% (23.9)% (35.1)% 36.7%
In the effective tax rate reconciliation above, the state rate benefit for the year ended December 31, 2009 is primarily the result of a change in the state
tax rates used to measure deferred taxes.
The effective tax rate for discontinued operations for the years ended December 31, 2009 and 2008, the Successor period from July 25, 2007 to
December 31, 2007 and the Predecessor period from January 1, 2007 to July 24, 2007 was a tax benefit of 38.6%, 39.3%, 31.8% and 40.1%, respectively.
92