Expedia 2011 Annual Report Download - page 105

A reconciliation of total income tax expense to the amounts computed by applying the statutory federal
income tax rate to income from continuing operations before income taxes is as follows:
Year Ended December 31,
2011 2010 2009
(In thousands)
Income tax (benefit) expense at the federal
statutory rate of 35% $140,725 $149,050 $111,928
Foreign rate differential and dividends from
foreign subsidiaries (74,431) (27,921) 950
State income taxes, net of effect of federal tax
benefit 5,262 4,290 4,746
Unrecognized tax benefits and related interest 8,297 (6,514) 3,123
Change in valuation allowance (7,740) (3,000) 7,503
Worthless stock deduction — — (23,124)
Other, net 3,618 4,437 (3,624)
Income tax expense $ 75,731 $120,342 $101,502
The effective tax rate in 2011 and 2010 was lower than the 35% federal statutory rate primarily due to
increase in earnings in jurisdictions outside the United States, where our effective rate is lower. During 2009, we
recorded a tax benefit of $23 million related to a worthless stock deduction associated with the closure of a
foreign subsidiary.
By virtue of the previously filed separate company and consolidated income tax returns filed with IAC, we
are routinely under audit by federal, state, local and foreign authorities. These audits include questioning the
timing and the amount of income and deductions and the allocation of income among various tax jurisdictions.
Annual tax provisions include amounts considered sufficient to pay assessments that may result from the
examination of prior year returns. We are no longer subject to tax examinations by tax authorities for years prior
to August 2003.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows, in
thousands:
2011 2010 2009
Balance, beginning of year $68,536 $187,075 $177,000
Increases to tax positions related to the current year 15,679 12,414 1,417
Increases to tax positions related to the prior year 1,047 1,207 21,910
Decreases to tax positions related to the prior year (2,142) (95,687) (11,470)
Reductions due to lapsed statute of limitations (3,352) (25,048) —
Settlements during current year — (913) (4,413)
Interest and penalties 1,914 (10,512) 2,631
Balance, end of year $81,682 $ 68,536 $187,075
As of December 31, 2011, we had $82 million of unrecognized tax benefits, of which $80 million is
classified as long-term and included in other long-term liabilities.
Included in the balance at December 31, 2011 and 2010 were $75 million and $46 million of liabilities for
uncertain tax positions that, if recognized, would decrease our provision for income taxes.
During 2010, the IRS concluded its audit of our consolidated federal tax return for the periods ended
December 31, 2005 through December 31, 2007. As a result, we decreased our liability for uncertain tax
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