Union Pacific 2007 Annual Report Download - page 63

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Deferred income tax liabilities/(assets) were comprised of the following at December 31:
Millions of Dollars 2007 2006
Net current deferred income tax asset....................................................................... $ (336) $ (319)
Property ................................................................................................................... $ 9,467 $9,356
State taxes, net of federal benefits........................................................................... 691 617
Other ........................................................................................................................ (108) (277)
Net long-term deferred income tax liability ............................................................. $10,050 $9,696
Net deferred income tax liability ............................................................................... $ 9,714 $9,377
In June 2006, the FASB issued FIN 48. We adopted FIN 48 on January 1, 2007. Under FIN 48, tax benefits are
recognized only for tax positions that are more likely than not to be sustained upon examination by tax
authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50
percent likely to be realized upon settlement. Unrecognized tax benefits are tax benefits claimed in our tax
returns that do not meet these recognition and measurement standards.
At adoption, our total liabilities for unrecognized tax benefits were $227 million pre-tax, or $173 million after
including tax benefits for the deductibility of interest and state taxes. Of this amount, $7 million was recorded
as a decrease to beginning retained earnings for the cumulative effect of adopting FIN 48. The remaining $166
million had been previously accrued under either FASB Statement No. 5, Accounting for Contingencies, or
FASB Statement No. 109, Accounting for Income Taxes. The entire $173 million was classified as non-current in
the Consolidated Statement of Financial Position.
A reconciliation of changes in pre-tax unrecognized tax benefits liabilities/(assets) from the beginning to the
end of the reporting period is as follows:
Millions of Dollars 2007
Unrecognized Tax Benefits at adoption on January 1, 2007....................................................... $227
Increases for positions taken in current year............................................................................. 15
Increases for positions taken in prior years............................................................................... 7
Decreases for positions taken in prior years.............................................................................. (45)
Decreases for positions expected to be taken in future years ................................................... (41)
Settlements with taxing authorities ........................................................................................... (1)
Increases (decreases) for interest and penalties......................................................................... 3
Other increases (decreases) ........................................................................................................ (4)
Unrecognized tax benefits at December 31, 2007........................................................................ $161
Included in the $161 million balance at December 31, 2007 and the $227 million balance at adoption were
$142 million and $182 million, respectively, of unrecognized tax benefits that, if recognized, would reduce our
effective tax rate. The remaining unrecognized tax benefits related to tax positions for which ultimate
deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility.
Recognition of these tax benefits would reduce our effective tax rate only through a reduction of accrued
interest and penalties.
We recognize interest and penalties as part of income tax expense. Total accrued pre-tax liabilities for interest
and penalties were $78 million ($47 million after-tax) at December 31, 2007 and $75 million ($45 million
after-tax) at adoption.
For all federal income tax years prior to 1995, the IRS examinations have been completed and the statute of
limitations bars any additional assessments by the IRS. We have filed interest refund claims for years 1986