Discover 2015 Annual Report Download - page 147

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A reconciliation of beginning and ending unrecognized tax benefits is as follows (dollars in millions):
For the Years Ended December 31,
2015 2014 2013
Balance at beginning of period ............................................................................................. $ 635 $ 629 $ 575
Additions
Current year tax positions ................................................................................................. 18 18 1
Prior year tax positions ..................................................................................................... 2 74 142
Reductions
Prior year tax positions ..................................................................................................... (26) (80)(69)
Settlements with taxing authorities ...................................................................................... (5) (4) (18)
Expired statute of limitations .............................................................................................. (1) (2) (2)
Other
Prior year tax positions(1) ................................................................................................... (337) — —
Balance at end of period(2) .................................................................................................... $ 286 $ 635 $ 629
(1) Overpayment of taxes in 2013 to 2015 for the timing of deductions resulting from uncertain tax positions for the years 1999 through 2012.
(2) For the years ended December 31, 2015, 2014 and 2013, amounts included $138 million, $144 million and $142 million respectively, of unrecognized tax
benefits, which, if recognized, would favorably affect the effective tax rate.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of
income tax expense. Interest and penalties related to unrecognized tax benefits were $131 million and $135 million for
the years ended December 31, 2015 and 2014, respectively.
The Company is subject to examination by the Internal Revenue Service ("IRS") and the tax authorities in various
state and foreign tax jurisdictions. The tax years under examination vary by jurisdiction. The IRS is currently examining
2011 through 2012.
The Company is pursuing an administrative appeal of the IRS’s proposed assessment for the years 1999 through
2005 and 2008 through 2010. It is reasonably possible that a settlement of the IRS appeals and certain state audits
may be made within 12 months of the reporting date. Furthermore, on February 18, 2016, the IRS issued a Notice of
Proposed Adjustment ("NOPA") for the years 2011 through 2012. The NOPA is for an unrecognized tax benefit,
which the Company is expected to accept in the first quarter of 2016. As a result, the Company believes it is reasonably
possible that the liability for unrecognized tax benefits for federal and certain state audits could decrease by $200
million to $365 million. However, such a reduction would not result in a change to total unrecognized tax benefits
presented in the table above because the decrease in the unrecognized tax benefits will result in a corresponding
reduction to the unrecognized tax benefit receivables.
The Company regularly assesses the likelihood of additional assessments or settlements in each of the taxing
jurisdictions resulting from these and subsequent years' examinations. The Company believes that its reserves are
sufficient to cover any tax, penalties and interest that could result from such examinations.
At December 31, 2015, the Company had net operating losses of $70 million that expire between 2018 and
2035.