First Data 2011 Annual Report Download - page 121

During the year ended December 31, 2010, the Company's liability for unrecognized tax benefits was reduced by $39 million
upon the closure of the 2002 federal tax year and after negotiating settlements with the IRS regarding specific contested issues in the
2003 and 2004 federal tax years. The reduction in the liability was recorded through a decrease to tax expense and an increase to
deferred tax liabilities.
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.
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. Cumulative accrued interest and penalties (net of related tax benefits) are not
included in the ending balances of unrecognized tax benefits. Cumulative accrued interest and penalties are included in the "Other
long-term liabilities" line of the Consolidated Balance Sheets while the related tax benefits are included in the "Long-term deferred tax
liabilities" line of the Consolidated Balance Sheets. The following table presents the approximate amounts associated with accrued
interest expense and the cumulative accrued interest and penalties:
Year ended December 31,
2011 2010 2009
Current year accrued interest expense (net of related tax benefits) $ 9 $ 14 $ 18
Cumulative accrued interest and penalties (net of related tax benefits) 69 67 70
As of December 31, 2011, the Company anticipates it is reasonably possible that its liability for unrecognized tax benefits may
decrease by approximately $163 million within the next twelve months as the result of the possible closure of its 2003 through 2007
federal tax years, potential settlements with certain states and foreign countries and the lapse of the statute of limitations in various
state and foreign jurisdictions. The potential decrease relates to various federal, state and foreign tax benefits including research and
experimentation credits, transfer pricing adjustments and certain amortization and loss deductions.
The Company or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. As of December 31, 2011, the Company was no longer subject to income tax examination by the U.S. federal
jurisdiction for years before 2003. State and local examinations are substantially complete through 2002. Foreign jurisdictions
generally remain subject to examination by their respective authorities from 2003 forward, none of which are considered major
jurisdictions.
Under the Tax Allocation Agreement executed at the time of the spin-off of The Western Union Company ("Western Union")
on September 29, 2006, Western Union is responsible for and must indemnify the Company against all taxes, interest and penalties
that relate to Western Union for periods prior to the spin-off date. If Western Union were to agree to or be finally determined to owe
any amounts for such periods but were to default in its indemnification obligation under the Tax Allocation Agreement, the Company
as parent of the tax group during such periods generally would be required to pay the amounts to the relevant tax authority, resulting in
a potentially material adverse effect on the Company's financial position and results of operations. As of December 31, 2011, the
Company had approximately $18 million of uncertain income tax liabilities recorded related to Western Union for periods prior to the
spin-off date. The Company has recorded a corresponding account receivable of equal amount from Western Union, which is included
as a long-term account receivable in the "Other long-term assets" line of the Company's Consolidated Balance Sheets, reflecting the
indemnification obligation. During the year ended December 31, 2011 the uncertain income tax liabilities related to Western Union
decreased by approximately $112 million as a result of agreements reached with the IRS regarding specific contested issues in the
2003 through 2006 federal tax years. As of December 31, 2011, the Company anticipates it is reasonably possible that the uncertain
tax liabilities related to Western Union may decrease by approximately $18 million within the next twelve months as the result of the
possible closure of its 2003 through 2007 federal tax years. The uncertain income tax liabilities and corresponding receivable are
based on information provided by Western Union regarding its tax contingency reserves for periods prior to the spin-off date. There is
no assurance that a Western Union-related issue raised by the IRS or other tax authority will be finally resolved at a cost not in excess
of the amount reserved and reflected in the Company's uncertain income tax liabilities and corresponding receivable from Western
Union. The Western Union contingent liability is in addition to the Company's liability for unrecognized tax benefits discussed above.
The IRS completed its examination of the United States federal consolidated income tax returns of the Company for 2003 and
2004 and issued a Notice of Deficiency (the "Notice") in December 2008. The Notice claims that the Company and its subsidiaries,
which included Western Union during the years at issue, owe significant additional taxes, interest and penalties with respect to a
variety of adjustments. The Company and Western Union agreed with several of the adjustments in the Notice, and during 2010, the
IRS conceded certain of the adjustments. During the fourth quarter of 2011, the Company and Western Union reached agreements
with the IRS resolving all remaining disputed adjustments in the Notice. As a result, the Company's liability for unrecognized tax
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