Goldman Sachs 2009 Annual Report Download - page 149

The  rm permanently reinvests eligible earnings of certain foreign
subsidiaries and, accordingly, does not accrue any U.S. income
taxes that would arise if such earnings were repatriated. As of
December2009 and November2008, this policy resulted in an
unrecognized net deferred tax liability of $2.34billion and
$1.08billion, respectively, attributable to reinvested earnings of
$16.21billion and $11.60billion, respectively.
During both 2009 and 2008, the valuation allowance was
decreased by $19million, primarily due to the utilization of losses
previously considered more likely than not to expire unused.
The  rm had federal net operating loss carryforwards, primarily
resulting from acquisitions, of $266million and $172million as
of December2009 and November2008, respectively. The  rm
recorded a related net deferred income tax asset of $91million
and $56million as of December2009 and November2008,
respectively. These carryforwards are subject to annual
limitations on utilization and will begin to expire in 2016.
The  rm had state and local net operating loss carryforwards,
primarily resulting from acquisitions, of $1.78billion and
$2.59billion as of December2009 and November2008,
respectively. The  rm recorded a related net deferred income
tax asset of $47million and $97million as of December2009
and November2008, 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
$24million and $5million as of December2009 and
November2008, respectively. No net deferred tax asset
was recorded for these losses as it is more likely than not
that the asset will not be realized. These carryforwards
are subject to limitation on utilization and can be carried
forward indefinitely.
The  rm recorded valuation allowances on net operating
losses of $46million and $60million as of December2009
and November2008, respectively.
The  rm had foreign tax credit carryforwards of $277million
and $334million as of December2009 and November2008,
respectively. These carryforwards are subject to limitation on
utilization and will begin to expire in 2019.
The  rm had capital loss carryforwards of $99million and
$50million as of December2009 and November2008,
respectively. The  rm recorded a related net deferred income
tax asset of $35million and $17million as of December2009
and November2008, respectively. These carryforwards are
subject to annual limitations on utilization and will begin to
expire in 2010.
The  rm adopted amended principles related to accounting for
uncertainty in income taxes as of December 1, 2007 and
recorded a transition adjustment resulting in a reduction of
$201million to beginning retained earnings.
The following table sets forth the changes in the  rm’s
unrecognized tax bene ts (inmillions):
2009 2008
Balance, beginning of year $1,548
(1) $1,042
Increases based on tax positions
related to the current year 143 172
Increases based on tax positions
related to prior years 379 264
Decreases related to tax positions
of prior years (19) (67)
Decreases related to settlements (91) (38)
Exchange rate  uctuations (35) –
Balance, end of year $1,925 $1,373
(1) Includes $175million recorded in the one month ended December 2008.
As of December2009 and November2008, the  rm’s liability
for unrecognized tax bene ts reported in “Other liabilities and
accrued expenses” in the consolidated statements of  nancial
condition was $1.93billion and $1.37billion, respectively. As
of December2009 and November2008, the  rm reported a
related deferred tax asset of $1.00billion and $625million,
respectively, in “Other assets” in the consolidated statements
of  nancial condition. If recognized, the net tax bene t of
$921million and $748million, would reduce the  rm’s
effective income tax rate as of December2009 and
November2008, respectively. As of December2009 and
November2008, the  rm’s accrued liability for interest
expense related to income tax matters and income tax
penalties was $194million and $111million, respectively. The
 rm reports interest expense related to income tax matters
in “Provision for taxes” in the consolidated statements of
earnings and income tax penalties in “Other expenses” in
the consolidated statements of earnings. The  rm recognized
$62million, $37million and $3million of interest and
income tax penalties for the years ended December2009
and November2008 and one month ended December 2008,
respectively. It is reasonably possible that unrecognized tax
bene ts could change signi cantly during the twelve months
subsequent to December2009. At this time, it is not possible
to estimate the change or its impact on the  rm’s effective tax
rate over the next twelve months.
Goldman Sachs 2009 Annual Report
147
Notes to Consolidated Financial Statements