LinkedIn 2014 Annual Report Download - page 119

As of December 31, 2014, the Company had research and development credit carryforwards for
federal income tax return purposes of approximately $60.4 million, which expire at various dates
beginning in the year 2023, if not utilized. The Company had research and development credit
carryforwards for state income tax return purposes of approximately $76.0 million, which can be carried
forward indefinitely.
Utilization of the net operating loss carryforwards and credits may be subject to a substantial
annual limitation due to the ownership change limitations provided by the Internal Revenue Code of
1986, as amended and similar state provisions. The annual limitation may result in the expiration of net
operating losses and credits before utilization. The Company believes an ownership change, as defined
under Section 382 of the Internal Revenue Code, existed in prior years, and has reduced its net
operating loss carryforwards to reflect the limitation.
As of December 31, 2014, the Company had approximately $66.5 million in total unrecognized tax
benefits. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows
(in thousands):
Year Ended
December 31,
2014 2013
Unrecognized tax benefits balance at January 1 ......................... $43,735 $19,344
Gross increase for tax positions of prior years ......................... 2,116 9,482
Gross decrease for tax positions of prior years ........................ (264) —
Gross increase for tax positions of current year ........................ 20,921 14,909
Gross unrecognized tax benefits at December 31 ........................ $66,508 $43,735
If the $66.5 million of unrecognized tax benefits as of December 31, 2014 is recognized,
approximately $38.1 million would decrease the effective tax rate in the period in which each of the
benefits is recognized. If the $43.7 million of unrecognized tax benefits as of December 31, 2013 is
recognized, approximately $25.3 million would decrease the effective tax rate in the period in which
each of the benefits is recognized. The remaining amount would be offset by the reversal of related
deferred tax assets on which a valuation allowance is placed. The Company does not expect any
material changes to its unrecognized tax benefits within the next twelve months.
The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. As of December 31, 2014 and 2013, penalties and interest were immaterial.
The Company files income tax returns in the U.S. federal jurisdiction as well as many U.S. states
and foreign jurisdictions. The tax years 2003 to 2013 remain open to examination by the major
jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation
remain open to audit by tax authorities due to tax attributes generated in those early years which have
been carried forward and may be audited in subsequent years when utilized. The Company is currently
under audit by the Internal Revenue Service (‘‘IRS’’) for the 2010 through 2012 tax years. The
Company is subject to the continuous examination of income tax returns by various tax authorities. The
Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to
determine the adequacy of the provision for income taxes. The Company believes that adequate
amounts have been reserved for any adjustments that may ultimately result from these examinations
and does not anticipate a significant impact to the gross unrecognized tax benefits within the next
12 months related to these years.
The Company attributes net revenue, costs and expenses to domestic and foreign components
based on the terms of its agreements with its subsidiaries. The Company does not provide for federal
income taxes on the undistributed earnings of its foreign subsidiaries, as such earnings are to be
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