HR Block 2010 Annual Report Download - page 74

The loss from discontinued operations for fiscal years 2010, 2009 and 2008 of $9.7 million, $27.4 million and
$754.6 million, respectively are net of tax benefits of $8.0 million, $20.3 million and $411.1 million, respectively. Our
effective tax rate for discontinued operations was 45.1%, 42.5% and 35.3% for fiscal years 2010, 2009 and 2008,
respectively.
As of April 30, 2010, we have recorded a deferred tax asset of $142.1 million, representing the tax effects of the
difference between the tax and book basis in the stock of our brokerage business sold to Ameriprise in November
2008. For tax purposes, we incurred a capital loss upon disposition of that business, which generally can only be
utilized to the extent we realize capital gains within five years subsequent to the date of the loss. We do not
currently expect to be able to realize a tax benefit for substantially all of this loss and, therefore, recorded a
valuation allowance of $122.6 million. We have capital loss carryover of approximately $362 million which will
expire if not used to offset future capital gains before December 31, 2013.
Our current tax expense has been reduced and our deferred tax expense increased by offsetting amounts due to
the tax effects of a tax accounting change impacting the timing of taxable income from certain mortgage related
assets. Because of this treatment we have recorded a noncurrent deferred tax liability of $81.1 million and a long
term receivable of the same amount as a result of this change.
Certain of our subsidiaries file stand-alone returns in various states and foreign jurisdictions, and others join in
filing consolidated or combined returns in such jurisdictions. At April 30, 2010, we had net operating losses (NOLs)
in various states and foreign jurisdictions. The amount of state NOLs vary by taxing jurisdiction. We recorded
deferred tax assets of $26.5 million for the tax effects of such losses and a valuation allowance of $19.8 million for
the portion of such losses that, more likely than not, will not be realized. If not used, the NOLs will expire in varying
amounts during fiscal years 2011 through 2030.
We intend to indefinitely reinvest foreign earnings, therefore, a provision has not been made for income taxes
that might be payable upon remittance of such earnings. Determination of the amount of unrecognized deferred
tax liability on unremitted foreign earnings is not practicable.
As a result of the initial adoption of accounting guidance effective fiscal year 2008, we recognized an additional
reserve for uncertain tax positions of $9.7 million and a corresponding decrease to retained earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2010 and 2009
is as follows:
Year Ended April 30, 2010 2009 2008
(in 000s)
Balance, beginning of the year $ 124,605 $ 137,608 $ 133,263
Additions based on tax positions related to prior years 12,957 14,541 26,283
Reductions based on tax positions related to prior years (2,427) (6,096) (16,500)
Additions based on tax positions related to the current year 3,314 4,110 17,736
Reductions related to settlements with tax authorities (8,545) (18,189) (18,633)
Expiration of statute of limitations (1,061) (5,007) (5,692)
Foreign currency translation 924 (2,362) 1,151
Balance, end of the year $ 129,767 $ 124,605 $ 137,608
Of the $129.8 million, $124.6 million and $137.6 million ending gross unrecognized tax benefit balance, as of
April 30, 2010, 2009 and 2008, respectively, $106.8 million, $107.0 million and $119.6 million, respectively, if
recognized, would impact the effective rate. This difference results from adjusting the gross balances for such
items as federal, state and foreign deferred items, interest and deductible taxes. We believe it is reasonably
possible that the balance of unrecognized tax benefits could decrease by approximately $74.5 million within the
next twelve months due to anticipated settlements of audit issues and expiring statutes of limitations. This amount
is included in accrued income taxes in our consolidated balance sheet. The remaining amount is classified as long-
term and is included in other noncurrent liabilities in the consolidated balance sheet.
Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. The
amount of gross interest and penalties accrued on uncertain tax positions during fiscal years 2010, 2009 and 2008
totaled $4.1 million, $15.4 million and $18.6 million, respectively. The total gross interest and penalties accrued as
of April 30, 2010, 2009 and 2008 totaled $39.7 million, $42.4 million and $47.5 million, respectively.
We file a consolidated federal income tax return in the U.S. and file tax returns in various state and foreign
jurisdictions. The consolidated tax returns for the years 2006 and 2007 are currently under examination by the IRS.
The consolidated tax returns for the years 1999 — 2005 are at the appellate level. Tax years prior to 1999 are closed
by statute. Historically, tax returns in various foreign and state jurisdictions are examined and settled upon
completion of the examination.
58 H&R BLOCK 2010 Form 10K