Starwood 2007 Annual Report Download - page 148

As a result of an August 2005 United States Tax Court decision against another taxpayer, the Company decided
to treat this transaction as if it were taxable in 1998 for accounting purposes and reclassified the taxes associated
with this transaction to a current liability. As such, the Company applied substantially all of its federal net operating
loss carryforwards against the gain and accrued interest, resulting in a $360 million net current liability and an
additional charge of approximately $52 million. The charge was comprised of $103 million in federal tax expense
primarily related to interest on the disputed tax adjustment and $51 million in state tax benefits. All of the current
liability was fully paid to the IRS in October 2005 in order to eliminate any future interest accruals associated with
the pending dispute.
A reconciliation of the tax provision of the Company at the U.S. statutory rate to the provision for income tax as
reported is as follows (in millions):
2007 2006 2005
Year Ended December 31,
Tax provision at U.S. statutory rate ............................. $257 $ 239 $225
U.S. state and local income taxes .............................. 13 (10) (14)
Exempt Trust income ....................................... — (32) (64)
Tax on repatriation of foreign earnings .......................... (29) (16) 11
Tax on repatriation of foreign earnings under the American Jobs Creation
Act of 2004 ............................................ — — 47
Foreign tax rate differential .................................. 12 (15) (28)
Change in uncertain tax positions .............................. 13 — —
Deferred gain on ITT World Directories disposition ................ — — 52
Tax settlements ........................................... 2 (59) (8)
Tax benefit on the deferred gain from the Host Transaction ........... (3) (356) —
Tax benefits recognized on Host Transaction . . . ................... 97 (1,017) —
Basis difference on asset sales ................................ (2) (41) —
Change in of valuation allowance .............................. (158) 884 7
Other ................................................... (13) (11) (9)
Provision for income tax (benefit).............................. $189 $ (434) $219
During 2007, the Company completed an evaluation of its ability to claim U.S. foreign tax credits generated in
prior years on its federal tax return. As a result of this analysis, the Company determined that it can realize the
credits for the 1999 and 2000 tax years. The Company had not previously accrued this benefit since the realization
of the benefit was determined to be unlikely. Therefore, during 2007, a $28 million tax benefit, net of incremental
taxes and interest, was recorded. In addition, during 2006, the Company determined that it could claim the credits
for the 2005 and 2006 tax years. The Company had not previously accrued this benefit since the realization of the
benefit was determined to be unlikely. Therefore, during 2006, a $15 million and $19 million tax benefit was
recorded for 2006 and 2005, respectively.
Pursuant to FIN 48, the Company is required to accrue tax and associated interest and penalty on uncertain tax
positions. During 2007, the Company recorded a $13 million charge, primarily associated with interest due on
existing uncertain tax positions.
During 2006, the IRS completed its audits of the Company’s 2001, 2002 and 2003 tax returns and issued its
final audit adjustments to the Company. In addition, state income tax audits for various jurisdictions and tax years
were completed during the year. As a result of the completion of these audits, the Company recorded a $50 million
tax benefit. The Company also recognized a $9 million tax benefit related to the reversal of previously accrued
income taxes after an evaluation of the applicable exposures and the expiration of the related statutes of limitations.
F-28
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)