Home Shopping Network 2010 Annual Report Download - page 65

Table of Contents
HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, is as follows (in thousands):
As of December 31, 2010 and 2009, the unrecognized tax benefits, including interest, were $0.7 million and $0.6 million, respectively.
During 2008, unrecognized tax benefits decreased by $8.8 million for tax positions included in IAC’s consolidated tax return filings. Liabilities
associated with these return filings are the responsibility of IAC pursuant to the terms of the spin-off. Included in unrecognized tax benefits at
December 31, 2010 and 2009 is approximately $0.4 million and $0.1 million for tax positions which the ultimate deductibility is highly certain
but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of
the shorter deductibility period would not affect the annual effective tax rate, other than the interest and penalties, but would accelerate the
payment of cash to the taxing authorities to an earlier period.
HSNi recognizes interest and, if applicable, penalties related to unrecognized tax benefits in income tax expense. Interest on unrecognized
tax benefits from continuing operations for the year ended December 31, 2008 was a $0.7 million benefit, net of related deferred taxes of $0.4
million. There is no material interest on unrecognized tax benefits included in income tax expense from continuing operations for the years
ended December 31, 2010 and 2009. At December 31, 2010 and 2009, HSNi has no material accrual for the payment of interest or penalties.
HSNi believes that it is reasonably possible that its unrecognized tax benefits could decrease by an immaterial amount within twelve
months of the current reporting date due to settlement with the taxing authority. An estimate of other changes in unrecognized tax benefits
cannot be made but are not expected to be significant.
By virtue of previously filed separate company and consolidated tax returns with IAC, HSNi is routinely under audit by federal, state, local
and foreign tax authorities. These audits include questioning the timing and the amount of deductions and the allocation of income among
various tax jurisdictions. Income taxes payable include amounts considered sufficient to pay assessments that may result from examination of
prior year returns; however, the amount paid upon resolution of issues raised may differ from the amount provided. Differences between the
reserves for tax contingencies and the amounts owed by HSNi are recorded in the period they become known.
As a result of the spin-off, HSNi entered into a Tax Sharing Agreement with IAC in which, among other things, each of the Spincos has
indemnified IAC and the other Spincos for any taxes resulting from the spin-off of such Spinco (and any related interest, penalties, legal and
professional fees, and all costs and damages associated with related shareholder litigation or controversies) to the extent such amounts result
from (i) any act or failure to act by such Spinco described in the covenants in the Tax Sharing Agreement, (ii) any acquisition of equity securities
or assets of such Spinco or a member of its group, and (iii) any breach by such Spinco or any member of its group of any representation or
covenant contained in the separation documents or in the documents relating to the Internal Revenue Service (“IRS”) private letter ruling and/or
tax opinions. In the event
62
2010 2009 2008
Balance at beginning of year
$
514
$
414
$
8,944
Additions based on tax positions related to the current year
191
—
—
Additions for tax positions of prior years
135
312
289
Reductions for tax positions of prior years
(210
)
(212
)
(8,819
)
Balance at end of year
$
630
$
514
$
414