International Paper 2012 Annual Report Download - page 92

unrecognized tax benefits at December 31, 2012 and
2011, respectively.
The major jurisdictions where the Company files
income tax returns are the United States, Brazil,
France, Poland and Russia. Generally, tax years 2002
through 2011 remain open and subject to examina-
tion by the relevant tax authorities. The Company is
typically engaged in various tax examinations at any
given time, both in the United States and overseas.
Currently, the Company is engaged in discussions
with the U.S. Internal Revenue Service regarding the
examination of tax years 2006 through 2009. As a
result of these discussions, other pending tax audit
settlements, and the expiration of statutes of limi-
tation, the Company currently estimates that the
amount of unrecognized tax benefits could be
reduced by up to $860 million during the next twelve
months. During 2012, unrecognized tax benefits
increased by $115 million primarily driven by the
acquisition of Temple-Inland. While the Company
believes that it is adequately accrued for possible
audit adjustments, the final resolution of these
examinations cannot be determined at this time and
could result in final settlements that differ from cur-
rent estimates.
Included in the Company’s 2012, 2011 and 2010
income tax provision (benefit) are $(85) million,
$(266) million and $(143) million, respectively,
related to special items. The components of the net
provisions related to special items were as follows:
In millions 2012 2011 2010
Special items and other charges:
Restructuring and other charges $(104) $(293) $(149)
Tax-related adjustments:
Internal restructurings 14 24 —
India deal costs —9—
IP UK valuation allowance release —(13) —
Settlement of tax audits and legislative
changes —5—
Incentiveplandeferredincometaxwrite-
off ——14
Medicare D deferred income tax write-off 5—32
Cellulosic bio-fuel credits —— (40)
Other tax adjustments —2—
Income tax provision (benefit) related to
special items $ (85) $(266) $ (143)
Excluding the impact of special items, the 2012 , 2011
and 2010 income tax provisions were $410 million,
$577 million and $364 million, respectively, or 29%,
32% and 30%, respectively, of pre-tax earnings
before equity earnings.
The following details the scheduled expiration dates
of the Company’s net operating loss and income tax
credit carryforwards:
In millions
2013
Through
2022
2023
Through
2032 Indefinite Total
U.S. federal and non-U.S.
NOLs $ 19 $151 $ 359 $ 529
State taxing jurisdiction
NOLs 167 133 — 300
U.S. federal, non- U.S.
and state tax credit
carryforwards 188 74 669 931
State capital loss
carryforwards 24 — — 24
Total $398 $358 $1,028 $1,784
Deferred income taxes are not provided for tempo-
rary differences of approximately $4.7 billion, $4.5
billion and $4.3 billion as of December 31, 2012 ,
2011 and 2010, respectively, representing earnings of
non-U.S. subsidiaries intended to be permanently
reinvested. Computation of the potential deferred tax
liability associated with these undistributed earnings
and other basis differences is not practicable.
The American Taxpayer Relief Act of 2012 (the “Act”)
was signed into law on January 2, 2013. The Act
retroactively restored several expired business tax
provisions, including the research and
experimentation credit and the Subpart F controlled
foreign corporation look-through exception. Because
a change in tax law is accounted for in the period of
enactment, the retroactive effect of the Act on the
Company’s U.S. federal taxes for 2012 of a benefit of
approximately $32 million will be recognized in the
first quarter of 2013. In addition, we expect the Act’s
extension of these provisions through the end of
2013 will favorably impact our estimated annual
effective tax rate for 2013 by approximately one
percentage point.
NOTE 10 COMMITMENTS AND CONTINGENT
LIABILITIES
PURCHASE COMMITMENTS AND OPERATING
LEASES
Certain property, machinery and equipment are
leased under cancelable and non-cancelable agree-
ments.
Unconditional purchase obligations have been
entered into in the ordinary course of business, prin-
cipally for capital projects and the purchase of cer-
tain pulpwood, logs, wood chips, raw materials,
energy and services, including fiber supply agree-
ments to purchase pulpwood that were entered into
concurrently with the Company’s 2006 Trans-
formation Plan forestland sales and in conjunction
with the 2008 acquisition of Weyerhaeuser Compa-
ny’s Containerboard, Packaging and Recycling busi-
ness.
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