Union Pacific 2012 Annual Report Download - page 70

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A reconciliation of changes in unrecognized tax benefits liabilities/(assets) from the beginning to the end
of the reporting period is as follows:
Millions 2012 2011 2010
Unrecognized tax benefits at January 1 $ 107 $ 86 $ 61
Increases for positions taken in current year 29 9 38
Increases for positions taken in prior years 4 81 11
Decreases for positions taken in prior years (19) (30) (22)
Payments to and settlements with taxing authorities - (27) (4)
Increases/(decreases) for interest and penalties (4) (9) 5
Lapse of statutes of limitations (2) (3) (3)
Unrecognized tax benefits at December 31 $ 115 $ 107 $ 86
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We recognize interest and penalties as part of income tax expense. Total accrued liabilities for interest
and penalties were $6 million and $10 million at December 31, 2012 and 2011, respectively. Total interest
and penalties recognized as part of income tax expense (benefit) were $(4) million for 2012, $10 million
for 2011, and $6 million for 2010.
Internal Revenue Service (IRS) examinations have been completed and settled for all years prior to 2005,
although some interest calculations remain open for years prior to 2005. The IRS has completed its
examinations and issued notices of deficiency for tax years 2005 through 2008. We disagree with many
of their proposed adjustments, and we are at IRS Appeals for these years. Additionally, several state tax
authorities are examining our state income tax returns for years 2003 through 2010.
In 2012, Union Pacific and the IRS signed a closing agreement resolving all tax matters for tax years
1999-2004. In connection with the settlement, we will receive a refund of $8 million in 2013. The
settlement had an immaterial effect on our income tax expense.
We do not expect our unrecognized tax benefits to change significantly in the next 12 months. At
December 31, 2012, we had a net unrecognized tax benefit liability of $115 million. Of that amount, $13
million is classified as a current asset in the Consolidated Statement of Financial Position.
The portion of our unrecognized tax benefits that relates to permanent changes in tax and interest would
reduce our effective tax rate, if recognized. The remaining unrecognized tax benefits relate to tax
positions for which only the timing of the benefit is uncertain. Recognition of the tax benefits with
uncertain timing would reduce our effective tax rate only through a reduction of accrued interest and
penalties. The unrecognized tax benefits that would reduce our effective tax rate are as follows:
Millions 2012 2011 2010
Unrecognized tax benefits that would reduce the effective tax rate $ 41 $ 80 $ 90
Unrecognized tax benefits that would not reduce the effective tax rate 74 27 (4)
Total unrecognized tax benefits $ 115 $ 107 $ 86