ServiceMagic 2010 Annual Report Download - page 79

Table of Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4—INCOME TAXES (Continued)
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, 2010 and 2009, the Company has accrued
$5.0 million for penalties.
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 income and deductions and the allocation of income and deductions among various tax jurisdictions.
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 currently been extended to December 31, 2011, but is expected to be extended further. 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, 2003. Income taxes payable include reserves considered sufficient to pay assessments that may
result from examination of prior year tax returns. Changes to reserves from period to period and differences between amounts paid, if any, upon
resolution of issues raised in audits and amounts previously provided may be material. Differences between the reserves for tax contingencies
and the amounts owed by the Company are recorded in the period they become known. The Company believes that it is reasonably possible that
its unrecognized tax benefits could decrease by $41.3 million within twelve months of the current reporting date primarily due to expirations of
statutes of limitation, the reversal of deductible temporary differences that will primarily result in a corresponding decrease in net deferred tax
assets, the reversal of state tax reserves based upon the receipt of favorable income tax rulings, and settlements. Included in this amount is
$4.9 million which will reverse in the first quarter of 2011 as a result of the receipt of a favorable state income tax ruling. An estimate of other
changes in unrecognized tax benefits, while potentially significant, cannot be made.
NOTE 5—GOODWILL AND INTANGIBLE ASSETS
The Company tests goodwill and indefinite-lived intangible assets for impairment annually or more frequently if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible
asset below its carrying value. The Company also reviews definite-lived intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of a definite-lived intangible asset may not be recoverable. The Company performed its annual
assessment for impairment of goodwill and indefinite-lived intangible assets as of October 1 in connection with the preparation of its annual
financial statements.
In connection with its annual assessment in 2010, the Company identified and recorded impairment charges at the Media & Other segment
related to the write-down of the goodwill and indefinite-
lived intangible assets of Shoebuy of $28.0 million and $4.5 million, respectively, and at
the Search segment related to the write-down of an indefinite-lived intangible asset of IAC Search & Media of $11.0 million. The indefinite-
lived intangible asset impairment charge at Shoebuy relates to trade names and trademarks. The goodwill and indefinite-lived intangible asset
impairment charges at Shoebuy reflect expectations of lower revenue and profit performance in future years due to Shoebuy's 2010 fourth
quarter revenue and profit performance, which is its seasonally strongest quarter. The indefinite-lived intangible asset impairment charge at IAC
Search & Media is primarily due to lower future revenue projections associated with a trade name and trademark based largely upon the impact
of 2010's full year results.
74