American Home Shield 2010 Annual Report Download - page 84

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 5. Income Taxes (Continued)
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 year ended December 31, 2008, 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 year ended December 31, 2008 have been audited by the IRS. In the
fourth quarter of 2010, the IRS completed the audits of the Company's tax returns for the year ended December 31, 2008 with no adjustments or additional
payments. The Company's tax returns for the year ended December 31, 2009 are under audit, which is expected to be completed during the first quarter of
2011. The IRS commenced examinations of the Company's U.S. federal income tax returns for 2010 in the first quarter of 2010. The examination is
anticipated to be completed by the second quarter of 2012. Four state tax authorities are in the process of auditing state income tax returns of various
subsidiaries.
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, 2010, the Company reversed interest expense of $0.6 million through the tax provision. During the years ended December 31, 2009 and 2008,
the Company recognized interest expense of $0.6 million and $0.9 million through the tax provision. No tax penalties were recorded through the provision
during the years ended December 31, 2010 or 2009. During the year ended December 31, 2008, the Company recognized penalties of $0.4 million through the
tax provision. As of December 31, 2010, 2009 and 2008, the Company had accrued for the payment of interest and penalties of $3.5 million, $4.2 million and
$3.7 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:
Year Ended Dec. 31,
2010 2009 2008
Tax at U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of U.S. federal benefit 1.6 (50.9) (2.0)
Tax credits 12.7 (16.8) 1.3
Change in valuation allowance 0.2 (4.3) (5.2)
Permanent items (13.7) (3.7) (1.6)
Unremitted foreign earnings (6.2) (12.4) —
Other, including foreign rate differences and reserves 1.8 10.1 (3.6)
Effective rate 31.4% (43.0)% 23.9%
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, 2010, 2009 and 2008, was a tax benefit of 52.9%, 38.6% and 39.3%,
respectively.
80