Goldman Sachs 2007 Annual Report Download - page 134

Notes to Consolidated Financial Statements
The firm is subject to examination by the U.S. Internal Revenue
Service (IRS) and other taxing authorities in jurisdictions where
the firm has significant business operations, such as the United
Kingdom, Japan, Korea and various states, such as New York.
During fiscal 2007, the IRS substantially concluded its
examination of fiscal years 2003 and 2004 and the firm does
not expect that potential additional assessments from this
examination will be material to its results of operations. The
firm expects the IRS examination of the firm’s 2005 and 2006
fiscal years will begin during 2008. Tax reserves have been
established, which the firm believes are adequate in relation to
the potential for additional assessments. The resolution of tax
matters is not expected to have a material effect on the firm’s
financial condition but may be material to the firm’s operating
results for a particular period, depending, in part, upon the
operating results for that period and the firm’s effective tax rate
for that period.
The firm had federal net operating loss carryforwards, primarily
resulting from acquisitions, of $139 million and $203 million as
of November 2007 and November 2006, respectively. The firm
recorded a related net deferred income tax asset of $44 million
and $69 million as of November 2007 and November 2006,
respectively. These carryforwards are subject to annual limitations
on utilization and will begin to expire in 2011.
The firm had state and local net operating loss carryforwards,
primarily resulting from acquisitions, of $1.62 billion and
$1.52 billion as of November 2007 and November 2006,
respectively. The firm recorded a related net deferred income
tax asset of $21 million and $31 million as of November 2007
and November 2006, respectively. These carryforwards are
subject to annual limitations on utilization and will begin to
expire in 2012.
The firm had foreign net operating loss carryforwards of
$306 million and $50 million as of November 2007 and
November 2006, respectively. The firm recorded a related net
deferred income tax asset of $84 million and $13 million as
of November 2007 and November 2006, respectively. These
carryforwards are subject to limitation on utilization and can
be carried forward indefinitely.
A reconciliation of the U.S. federal statutory income tax rate to the firm’s effective income tax rate is set forth below:
Year Ended November
2007 2006 2005
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
Increase related to state and local taxes, net of U.S. income tax effects 1.8 1.6 1.6
Tax credits (0.5) (0.6) (1.6)
Foreign operations (1.6) (1.3) (1.2)
Tax-exempt income, including dividends (0.4) (0.4) (0.6)
Other (0.2) 0.2
(1) (1.2)
Effective income tax rate 34.1% 34.5% 32.0%
(1) Primarily includes the effect of audit settlements.
Tax benefits of approximately $908 million in November 2007, $653 million in November 2006 and $272 million in November 2005,
related to the delivery of common stock underlying restricted stock units and the exercise of options, were credited directly to
“Additional paid-in capital” in the consolidated statements of financial condition and changes in shareholders’ equity.
132 Goldman Sachs 2007 Annual Report