United Healthcare 2007 Annual Report Download - page 78

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be
realized. The valuation allowances primarily relate to future tax benefits on certain federal and state net operating
loss carryforwards. Federal net operating loss carryforwards expire beginning in 2008 through 2027, and state net
operating loss carryforwards expire beginning in 2008 through 2027.
The Company adopted the provisions of FIN 48 on January 1, 2007. The cumulative effect of adopting FIN 48
for the first quarter of 2007 resulted in an increase to our liability for unrecognized tax benefits of $88 million,
which included a reduction of $61 million in retained earnings and an increase of $26 million in goodwill. The
total amount of unrecognized tax benefits as of the date of adoption was $341 million. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as follows:
(in millions) 2007
Gross Unrecognized Tax Benefits, January 1, 2007 ...................... $ 341
Gross Increases:
Current Year Tax Positions ..................................... 23
Prior Year Tax Positions ....................................... 26
Gross Decreases:
Prior Year Tax Positions ....................................... (31)
Settlements ................................................. (87)
Statute of Limitations Lapses ................................... (1)
Gross Unrecognized Tax Benefits, December 31, 2007 ................... $ 271
We classify interest and penalties associated with uncertain income tax positions as income taxes within our
Consolidated Financial Statements. During the year ended December 31, 2007, the Company recognized
approximately $28 million in interest expense. The Company had approximately $54 million of accrued interest
at December 31, 2007, which is reported in Accounts Payable and Accrued Liabilities in the Consolidated
Balance Sheets. This amount is not included in the reconciliation above. No amount was accrued for penalties.
As of December 31, 2007, the total amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate was $131 million.
We currently file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions. The U.S.
Internal Revenue Service (IRS) has completed exams on the consolidated income tax returns for fiscal years 2006 and
prior. Our 2007 tax return is under advance review by the IRS under its Compliance Assurance Program (CAP). With
the exception of a few states, we are no longer subject to income tax examinations prior to 2002 in major state and
foreign jurisdictions. We do not believe any adjustments that may result from these examinations will be significant.
We believe it is reasonably possible that our liability for unrecognized tax benefits will decrease in the next
twelve months by $75 million or less as a result of audit settlements and the expiration of statutes of limitations
in certain major jurisdictions.
12. AARP
We provide health insurance products and services to members of AARP. These products and services are
provided to supplement benefits covered under traditional Medicare (AARP Medicare Supplement Insurance),
hospital indemnity insurance, health insurance focused on persons between 50 to 64 years of age, and other
products (Supplemental Health Insurance Program). Under the Supplemental Health Insurance Program, we are
compensated for transaction processing and other services as well as for assuming underwriting risk. We are also
engaged in product development activities to complement the insurance offerings. Premium revenues from our
portion of the AARP Supplemental Health Insurance Program were approximately $5.3 billion in 2007, $5.0
billion in 2006 and $4.9 billion in 2005.
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