ServiceMagic 2009 Annual Report Download - page 40

Table of Contents
Gain on sale of long-term investments in 2007 represents amounts received due to the resolution of certain contingencies related to the sale
of our common interests in VUE to NBC Universal on June 7, 2005.
Other income in 2007 of $35.5 million was primarily due to gains of $24.1 million and $5.2 million associated with the CVR and the
derivatives created in the Expedia spin-off, respectively. Other income also included a gain of $3.1 million on the sale of fixed assets in 2007.
Income tax provision
In 2009, the Company recorded an income tax provision for continuing operations of $1.5 million, despite losses from continuing
operations. The tax provision is due to non-deductible impairment charges related to IAC Search & Media. In 2008, the Company recorded an
income tax benefit for continuing operations of $37.7 million, despite income from continuing operations. The tax benefit is due to a net
reduction in deferred tax liabilities caused by the Spin-Off, foreign tax credits generated by the sale of Jupiter Shop, foreign income taxed at
lower rates, and state tax benefits, partially offset by changes in tax reserves, non-deductible costs related to the Spin-Off, and an increase in
valuation allowances on deferred tax assets related to other-than-temporary losses related to certain investments. In 2007, the Company recorded
an income tax provision for continuing operations of $2.3 million, despite a loss from continuing operations. The tax provision includes interest
on tax contingencies, partially offset by benefits from foreign tax credits associated with foreign equity investments, tax exempt income, federal
tax credits for increasing research activities and non-taxable gains on derivatives.
The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax. 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 tax 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 the Company are recorded in the period they become known.
At December 31, 2009 and 2008, the Company had unrecognized tax benefits of $394.3 million and $372.6 million, respectively.
Unrecognized tax benefits for December 31, 2009 increased by $21.7 million due principally to a net increase in state and local tax reserves,
offset by the reversal of deductible temporary differences. The Company recognizes interest and, if applicable, penalties related to unrecognized
tax benefits in income tax expense. Included in the income tax expense from continuing operations and discontinued operations for the year
ended December 31, 2009 is an $8.3 million expense and a $3.7 million expense, net of related deferred taxes of $5.5 million and $2.5 million,
respectively, for interest on unrecognized tax benefits. At December 31, 2009 and 2008, the Company has accrued $68.7 million and
$49.7 million, respectively, for the payment of interest. Included in the income tax expense from continuing operations and discontinued
operations for the year ended December 31, 2009 is a $3.1 million expense and a $1.3 million expense, respectively, for penalties on
unrecognized tax benefits. At December 31, 2009 and 2008, the Company has accrued $5.0 million and $0.6 million, respectively, for penalties.
The Internal Revenue Service is currently examining the Company's tax returns for the years ended December 31, 2001 through 2006. The
statute of limitations for these years has been extended to December 31, 2010. Various state, local and foreign jurisdictions are currently under
examination, the most significant of which are California, New York and New York City, for various tax years beginning with December 31,
2002. These examinations are expected to be completed in 2011. The Company believes that it is reasonably possible that its unrecognized tax
benefits could decrease by $16.5 million within twelve months of the current reporting date primarily due to the reversal of deductible
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