ServiceMagic 2011 Annual Report Download - page 81

IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4—INCOME TAXES (Continued)
December 31, 2011 and 2010, the Company has accrued $111.2 million and $97.7 million, respectively, for the payment of interest. Included in
the income tax provision for continuing operations for the year ended December 31, 2011 is a $2.5 million benefit for a reduction in penalties on
unrecognized tax benefits. Included in 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, 2011 and 2010, the Company has accrued $2.5 million and $5 million, respectively, 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 ("IRS") has substantially completed its review of the Company's tax returns for the years ended December 31,
2001 through 2006. The settlement has not yet been submitted to the Joint Committee of Taxation for approval. The IRS began its review of the
Company's tax returns for the years ended December 31, 2007 through 2009 in July 2011. The statute of limitations for the years 2001
through 2008 has currently been extended to December 31, 2012. Various state and local jurisdictions are currently under examination, the most
significant of which are California, New York and New York City for various tax years beginning with 2005. 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 income 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 $60.3 million within
twelve months of the current reporting date, of which approximately $13.1 million could decrease income tax provision, primarily due to
settlements, expirations of statutes of limitations, and the reversal of deductible temporary differences that will primarily result in a
corresponding decrease in net deferred tax assets. An estimate of other changes in unrecognized tax benefits, while potentially significant, cannot
be made.
NOTE 5—BUSINESS COMBINATIONS
Meetic Acquisition
In 2009, Match acquired a 27% ownership interest in Meetic. Match accounted for this interest under the equity method of accounting.
During the third quarter of 2011, Match acquired an additional 12.5 million shares of Meetic for $272.0 million in cash pursuant to a tender
offer. These additional shares increased Match's voting interest and ownership interest in Meetic to 79% and 81%, respectively, resulting in
Match obtaining a controlling financial interest in Meetic. Accordingly, this purchase was accounted for under the acquisition method of
accounting and the financial results of Meetic are included within IAC's consolidated financial statements and the Match operating segment
beginning September 1, 2011. For the year ended December 31, 2011, the Company included $46.1 million of revenue, net of a $32.6 million
write-off of deferred revenue, and a net loss of $8.6 million in its consolidated statement of operations related to Meetic.
In connection with the acquisition, Match's 27% equity method investment in Meetic was reduced to its fair value of $132.7 million,
resulting in a loss of $11.7 million, which is included within "Equity in losses of unconsolidated affiliates" in the accompanying consolidated
statement of operations.
75