HR Block 2013 Annual Report Download - page 84

H&R Block 2013 Form 10-K 77
against our capital loss carry-forward of $39.0 million and $63.6 million as of April 30, 2013 and 2012, respectively.
The total decrease in valuation allowance on deferred tax assets for the period ended April 30, 2013 was $22.8 million,
of which only $5.5 million favorably impacted income tax expense. Substantially all of the valuation allowance decrease
was offset by the shift of a deferred tax asset from the U.S. to a foreign jurisdiction as a result of an intercompany
transaction. The effects of differing income tax laws and rates on the shift in deferred tax asset offset all but $5.5 million
of the tax benefit from the decrease in the valuation allowance. As of April 30, 2013, the capital loss carry-forward
totaled approximately $124 million, and will expire if not used to offset future capital gains before December 31, 2013.
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, 2013, 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 $20.1 million for the tax effects of such losses and a valuation allowance of $14.4 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 2014 through 2033.
We intend to indefinitely reinvest foreign earnings for virtually all of our foreign companies; therefore, no provision
has been made for income taxes that might be payable upon remittance of such earnings. The amount of unrecognized
deferred tax liability on unremitted foreign earnings is immaterial as of April 30, 2013.
Changes in unrecognized tax benefits for fiscal years 2013, 2012 and 2011 are as follows:
(in 000s)
Year ended April 30, 2013 2012 2011
Balance, beginning of the year $ 206,393 $ 154,848 $ 129,767
Additions based on tax positions related to prior years 11,867 26,523 28,262
Reductions based on tax positions related to prior years (49,493) (3,858) (1,473)
Additions based on tax positions related to the current year 2,314 42,735 3,417
Reductions related to settlements with tax authorities (25,259) (8,742) (7,639)
Expiration of statute of limitations (702)(2,814) (315)
Foreign currency translation (278)(838)1,057
Other 1,549 (1,461) 1,772
Balance, end of the year $ 146,391 $ 206,393 $ 154,848
Of the total ending gross unrecognized tax benefit balance as of April 30, 2013, 2012 and 2011, respectively, $95.3
million, $150.4 million and $117.6 million, respectively, if recognized, would impact our effective tax rate. The
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 $38 million within the next twelve months due to settlements of audit issues and expiration of statutes
of limitations.
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 decreased $6.9 million and $5.5 million during
fiscal years 2013 and 2012, respectively, and increased $4.4 million in fiscal year 2011. The total gross interest and
penalties accrued as of April 30, 2013, 2012 and 2011 totaled $31.7 million, $38.6 million and $44.1 million, respectively.
We file a consolidated federal income tax return in the United States with the Internal Revenue Service (IRS) and
file tax returns in various state and foreign jurisdictions. Tax returns are typically examined and settled upon completion
of the exam, with tax controversies settled either at the exam level or through the appeal process.
In November 2012, we received written approval from the IRS Joint Committee on Taxation of the settlement of a
majority of the issues related to the examination of our 1999 through 2007 tax returns. In fiscal year 2013, we recorded
the impact of the settlement which reduced uncertain tax benefits by $59.0 million. Of this reduction, $33.3 million
resulted in an income tax benefit.
Except for three issues for which we are pursuing refund claims for tax years 2002 through 2007, which will remain
open until resolved, these years are closed. In addition, U.S. Federal consolidated tax returns for 2008 through 2010