Avis 2009 Annual Report Download - page 88

Table of Contents
Substantially all of the gross amount of the unrecognized tax benefits at December 31, 2009, 2008 and 2007, if recognized, would affect the
Company’s benefit from income taxes. The Company’s unrecognized tax benefits were offset by tax credits in the amount of $104 million
and tax loss carryforwards in the amount of $10 million, $10 million and $15 million as of December 31, 2009, 2008 and 2007, respectively.
As of December 31, 2009, the unrecognized tax benefits recorded in Accounts payable and other current liabilities were $383 million. As of
December 31, 2009, 2008 and 2007, the unrecognized tax benefits in long-term income taxes payable were $100 million, $480 million and
$440 million, respectively, which were recorded as a component of Other non-current liabilities on the Consolidated Balance Sheets.
During the twelve months ended December 31, 2009, 2008 and 2007, the Company recorded additional liabilities of $19 million, $51
million and $23 million, respectively, for the accrual of interest, which had a minimal impact on the Company’s results of operations as the
Company is entitled to indemnification for a substantial portion of such liabilities and recognized corresponding receivables from Realogy
and Wyndham. The Company recognizes potential interest and corresponding indemnification from Realogy and Wyndham, related to
unrecognized tax benefits within interest expense related to corporate debt, net on the accompanying Consolidated Statements of Operations.
Penalties incurred during the twelve months ended December 31, 2009, 2008 and 2007, were not significant and were recognized as a
component of income taxes.
The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required to
determine the Company’s worldwide provision for income taxes and to record the related assets and liabilities. In the ordinary course of
business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under
audit by tax authorities. Pursuant to the Tax Sharing Agreement entered into in connection with the Cendant Separation and the Separation
Agreement, the Company is entitled to indemnification for non-Avis Budget Car Rental tax contingencies for taxable periods prior to and
including the Cendant Separation.
2003-2006 Audit
The Internal Revenue Service (“IRS”) is examining the Company’s taxable years 2003 through 2006, the year of the Cendant
Separation. The Company anticipates finalizing such audit prior to December 31, 2010. The Company has recorded within accounts payable
and other current liabilities a $383 million liability, plus interest in respect of such taxable years. Such liability reflects the Company’s
current best estimates of the probable outcome with certain tax positions. The Company believes that its accruals for tax liabilities, including
the liabilities for which it is entitled to indemnification pursuant to the Tax Sharing Agreement and Separation Agreement, are adequate for
all remaining open years based on its assessment of many factors, including past experience and interpretations of tax law applied to the
facts of each matter. The Company is entitled to indemnification for most pre-Separation tax matters from Realogy and Wyndham (and has
received a letter of credit from Realogy to help ensure Realogy’s performance under its indemnification obligations) and therefore does not
expect such resolution to have a significant impact on its earnings, financial position or cash flows.
The rules governing taxation are complex and subject to varying interpretations. Therefore, the Company’s tax accruals reflect a series of
complex judgments about future events and rely heavily on estimates and assumptions. Although the Company believes the estimates and
assumptions supporting its tax accruals are reasonable, the potential result of an audit or litigation related to tax could include a range of
outcomes, and could result in tax liabilities for the Company that are materially different than those reflected in the Consolidated Financial
Statements.
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