First Data 2009 Annual Report Download - page 140

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ending December 31, 2008 and December 31, 2009 are included in the “Long-term deferred tax liabilities” line
of the Consolidated Balance Sheets, as these items reduce the Company’s net operating loss and credit
carryforwards from those periods. The unrecognized tax benefits at December 31, 2009 included approximately
$217 million of tax positions that, if recognized, would affect the effective tax rate.
During the year ended December 31, 2009, the Company’s liability for unrecognized tax benefits was
reduced by $5 million after negotiating settlements with certain state jurisdictions. The reduction in the liability
was recorded through cash payments and a decrease to tax expense.
During the year ended December 31, 2008, the Company’s liability for unrecognized tax benefits was
reduced by $11 million after negotiating settlements with certain state jurisdictions. The reduction in the liability
was recorded through cash payments and a decrease to goodwill.
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 of 2007 for uncertainty regarding a federal tax receivable in the amount of approximately $8 million,
which increased tax expense. Additional state statutes expired in October 2007 decreasing the Company’s
unrecognized tax benefits by approximately $4 million, which decreased goodwill.
The Company recognizes interest and penalties related to unrecognized tax benefits in the “Income tax
(benefit) expense” line item of the Consolidated Statements of Operations. Included in the “Income tax (benefit)
expense” line for the year ended December 31, 2009 was approximately $18 million of accrued interest expense
(net of related tax benefits). Included for the year ended December 31, 2008, the successor period from
September 25, 2007 through December 31, 2007 and the predecessor period from January 1, 2007 through
September 24, 2007 were approximately $15 million, $4 million and $6 million, respectively, of accrued interest
expense (net of related tax benefits). The Company had approximately $70 million of interest and penalties (net
of related tax benefits) accrued at December 31, 2009 which were not included in the period ending balance of
$415.0 million of unrecognized tax benefits. Accrued interest and penalties are included in the “Other long-term
liabilities” line of the Consolidated Balance Sheets. The related tax benefits of the accrued interest are included
in the “Long-term deferred tax liabilities” line of the Consolidated Balance Sheets.
As of December 31, 2009, the Company anticipates it is reasonably possible that its liability for
unrecognized tax benefits may decrease by approximately $49 million within the next twelve months as the result
of the possible closure of its 2002 federal tax year, the possible resolutions of specific contested issues in the
2003 and 2004 federal tax years, and the lapse of the statute of limitations in various state jurisdictions. The
potential decrease relates to various federal and state tax benefits including research and experimentation credits
and certain amortization, loss and stock warrant deductions.
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. Those tax returns are subject to examination by the Internal Revenue
Service (“IRS”) and the relevant state and foreign tax authorities. The tax years under examination and open to
examination vary by jurisdiction. As of December 31, 2009, the Company is no longer subject to income tax
examination by the IRS for years before 2002. State and local examinations are substantially complete through
1999. Foreign jurisdictions generally remain subject to examination by their respective authorities from 2000
forward, none of which is considered a major jurisdiction.
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