First Data 2007 Annual Report Download - page 119

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the unrecognized tax benefits for the predecessor period from January 1, 2007 through September 24, 2007 and the successor period
from September 25, 2007 through December 31, 2007 is as follows (in millions):
Predecessor:
Balance as of January 1, 2007 $ 303.5
Increases for tax positions of prior years 28.6
Increases for tax positions related to the current period 7.8
Decreases due to the lapse of applicable statute of limitations (30.9)
Balance as of September 24, 2007 309.0
Successor:
Increases for tax positions of prior years $ 5.4
Increases for tax positions related to the current period 58.4
Decreases for settlements with taxing authorities (0.6)
Decreases due to the lapse of applicable statute of limitations (4.1)
Balance as of December 31, 2007 $ 368.1
The unrecognized tax benefit is included in the "Accounts payable and other liabilities" line of the Consolidated Balance Sheets, net of the federal
benefit on state income taxes (approximately $31 million at December 31, 2007), and included at December 31, 2007 was approximately $3 million of tax
positions that, if recognized, would affect the effective tax rate in the successor period. In September 2007, the Company's statute of limitations expired for
certain state and federal positions without adjustment, resulting in the Company's unrecognized tax benefits decreasing by approximately $31 million, of
which $1 million was recognized as a decrease to income tax expense of the predecessor period and the remaining $30 million as a decrease to goodwill. The
$31 million decrease was comprised of $4 million of federal and $27 million of state tax positions. The Company increased unrecognized tax benefits in the
third quarter for uncertainty regarding a federal tax receivable in the amount of approximately $8 million. Additional state statutes expired in October 2007
decreasing the Company's unrecognized tax benefits by approximately $4 million, all of which decreased goodwill.
As of December 31, 2007, the Company anticipates that its liability for unrecognized tax benefits will change within the next twelve months; however,
the Company does not expect the change to significantly increase or decrease the total amounts of unrecognized tax benefits.
The Company recognizes interest related to unrecognized tax benefits and penalties in the "Income taxes" line item of the Consolidated Statements of
Income. Included in the "Income tax (benefit) expense" line for the period from January 1 through September 24, 2007 and the period from September 25,
2007 through December 31, 2007 were approximately $6 million and $4 million, respectively, of accrued interest expense (net of related tax benefits). The
Company had approximately $47 million of interest and penalties accrued at December 31, 2007 which are not included in the period ending balance of
$368.1 million of unrecognized tax benefits. Accrued interest and penalties are included in the "Accounts payable and other liabilities" line of the
Consolidated Balance Sheet.
The Company or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. As of
December 31, 2007, the Company is no longer subject to income tax examination by the U.S. federal tax jurisdiction for years before 2002. State and local
examinations are substantially complete through 1998.
Prior to the spin-off transaction, Western Union was part of the FDC consolidated, unitary and combined income tax returns ("combined tax returns")
through September 29, 2006. As contemplated in certain agreements associated with the spin-off transaction, the Company is indemnified by Western Union
for certain taxes attributable to operations of Western Union with respect to periods before the spin-off date of September 29, 2006. Although the Company is
indemnified by Western Union, the Company remains the primary obligor to the tax authorities with respect to such combined tax return liabilities related to
Western Union. Accordingly, as of December 31, 2007, FDC had approximately $133 million of uncertain income tax liabilities, including interest and
penalties, recorded related to Western Union operations with a corresponding receivable from Western Union, included in the "Accounts receivable" line of
the Consolidated Balance Sheets, to reflect the indemnification for such liabilities. The liability for unrecognized tax benefits related to Western Union as of
January 1, 2007 was approximately $115 million. Additionally, accruals for 2006 provision to return adjustments and interest expense increased the balance to
approximately $133 million as of December 31, 2007. The Western Union contingent liability is in addition to the FDC liability for unrecognized tax benefits
discussed above.
117