HR Block 2011 Annual Report Download - page 75

A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2011, 2010 and
2009 is as follows:
Year Ended April 30, 2011 2010 2009
(in 000s)
Balance, beginning of the year $ 129,767 $ 124,605 $ 137,608
Additions based on tax positions related to prior years 28,262 12,957 14,541
Reductions based on tax positions related to prior years (1,473) (2,427) (6,096)
Additions based on tax positions related to the current year 3,417 3,314 4,110
Reductions related to settlements with tax authorities (7,639) (8,545) (18,189)
Expiration of statute of limitations (315) (1,061) (5,007)
Foreign currency translation 1,057 924 (2,362)
Other 1,772 ––
Balance, end of the year $ 154,848 $ 129,767 $ 124,605
Of the $154.8 million, $129.8 million and $124.6 million ending gross unrecognized tax benefit balance as of
April 30, 2011, 2010 and 2009, respectively, $117.6 million, $106.8 million and $107.0 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 $17 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 2011, 2010 and 2009
totaled $4.4 million, $4.1 million and $15.4 million, respectively. The total gross interest and penalties accrued as of
April 30, 2011, 2010 and 2009 totaled $44.1 million, $39.7 million and $42.4 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 IRS 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.
NOTE 16: INTEREST INCOME AND INTEREST EXPENSE
The following table shows the components of interest income and expense of our continuing operations. Interest
expense is included in cost of revenues on our consolidated statements of income.
Year Ended April 30, 2011 2010 2009
(in 000s)
Interest income:
Mortgage loans, net $ 24,693 $ 31,877 $ 46,396
Emerald Advance lines of credit 94,300 77,891 91,019
Investment securities 1,609 2,318 4,896
Other 13,551 10,319 12,205
$ 134,153 $ 122,405 $ 154,516
Interest expense:
Borrowings $ 85,421 $ 78,398 $ 83,193
Deposits 8,488 10,174 14,069
FHLB advances 1,526 1,997 5,113
$ 95,435 $ 90,569 $ 102,375
NOTE 17: VARIABLE INTERESTS
The following is a description of our financial interests in VIEs which we consider significant or where we are the
sponsor. For these VIEs we have determined that we are not the primary beneficiary and, therefore have not
consolidated the VIEs. Prior to implementation of this new guidance we did not consolidate these entities.
McGladrey & Pullen LLP – McGladrey & Pullen LLP (M&P) is a limited liability partnership, owned 100% by
certified public accountants (CPAs), which provides attest services to middle market clients.
Under state accountancy regulations, a firm cannot provide attest services unless it is properly licensed which
requires that the firm be majority-owned and controlled by licensed CPAs. As such, RSM McGladrey, Inc. (RSM)
cannot be a licensed CPA firm and cannot provide attest services. Since 1999, RSM and M&P have operated in what
H&R BLOCK 2011 Form 10K 63