ServiceMagic 2012 Annual Report Download - page 33

Table of Contents
provision for continuing operations and discontinued operations for the year ended December 31, 2012 is a $5.2 million expense and a $2.8
million benefit, respectively, net of related deferred taxes, for interest on unrecognized tax benefits. Included in income tax provision for
continuing operations and discontinued operations for the year ended December 31, 2011 is a $1.4 million expense and a $6.7 million expense,
respectively, net of related deferred taxes, respectively, for interest on unrecognized tax benefits. At December 31, 2012 and 2011, the Company
has accrued $117.5 million and $111.2 million, respectively, for the payment of interest. At December 31, 2012 and 2011, the Company has
accrued $5.0 million and $2.5 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 audit of the Company's tax returns for the years ended December 31, 2001
through 2009. The settlement of these tax years has not yet been submitted to the Joint Committee of Taxation for approval. The statute of
limitations for the years 2001 through 2009 has been extended to December 31, 2013, and we expect it to be extended further. 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 $122.2 million within twelve months of the current reporting date, of which approximately $13.4 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.
Discontinued operations
In 2010, the Company recognized an after-tax gain of $140.8 million on the tax-free exchange of Evite, Gifts.com and IAC Advertising
Solutions.
The 2012 loss is primarily due to an increase in reserves for income tax contingencies. The 2011 loss is primarily due to interest on
reserves for income tax contingencies, partially offset by foreign currency exchange gains related to the liquidation of certain inactive
subsidiaries. The 2010 loss is primarily due to losses of InstantAction, which includes a pre-tax impairment charge related to goodwill of
$31.6 million.
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Years Ended December 31,
2012
$ Change % Change 2011 $ Change % Change 2010
(Dollars in thousands)
Gain on Liberty
Exchange $—
$— —% $— $(140,768) NM $140,768
Loss from discontinued
operations, net of tax $(9,051) $(5,059) (127)% $(3,992) $33,031 89% $(37,023)