O'Reilly Auto Parts 2013 Annual Report Download - page 76

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FORM 10-K
70
Unrecognized tax benefits:
The following table summarizes the changes in the gross amount of unrecognized tax benefits, excluding interest and penalties, for the
years ended December 31, 2013, 2012 and 2011 (in thousands):
For the Year Ended December 31,
2013 2012 2011
Balance as of January 1, $ 51,004 $ 45,800 $ 36,710
Additions based on tax positions related to the current year 7,046 8,100 7,308
Additions based on tax positions related to prior years —1,301 4,060
Payments related to items settled with taxing authorities (1,056)(451)—
Reductions due to the lapse of statute of limitations and settlements (6,535)(3,746) (2,278)
Balance as of December 31, $ 50,459 $ 51,004 $ 45,800
For the years ended December 31, 2013, 2012 and 2011, the Company recorded a reserve for unrecognized tax benefits (including interest
and penalties) of $58.6 million, $59.3 million and $53.0 million, respectively. All of the unrecognized tax benefits recorded as of December
31, 2013, would affect the Company’s effective tax rate if recognized, generally net of the federal tax effect of approximately $16.6
million. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of the years ended
December 31, 2013, 2012 and 2011, the Company had accrued approximately $8.1 million, $8.3 million and $7.2 million, respectively,
of interest and penalties related to uncertain tax positions before the benefit of the deduction for interest on state and federal returns.
During the years ended December 31, 2013, 2012 and 2011, the Company recorded tax expense related to an increase in its liability for
interest and penalties of $2.1 million, $2.6 million and $3.9 million, respectively. Although unrecognized tax benefits for individual tax
positions may increase or decrease during 2014, the Company expects a reduction of $4.3 million of unrecognized tax benefits during
the one-year period subsequent to December 31, 2013, resulting from settlement or expiration of the statute of limitations.
The Company’s United States federal income tax returns for tax years 2011 and beyond remain subject to examination by the Internal
Revenue Service (“IRS”). The IRS concluded an examination of the O'Reilly consolidated 2008, 2009 and 2010 federal income tax
returns in the first quarter of 2013. The statute of limitations for the Company’s federal income tax returns for tax years 2009 and prior
expired on September 15, 2013. The statute of limitations for the Company’s U.S. federal income tax return for 2010 will expire on
September 15, 2014, unless otherwise extended. The IRS is currently conducting an examination of the Company’s consolidated returns
for the tax year 2011. The Company’s state income tax returns remain subject to examination by various state authorities for tax years
ranging from 2002 through 2012.