United Healthcare 2008 Annual Report Download - page 88

UNITEDHEALTH GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 state net operating loss
carryforwards. Federal net operating loss carryforwards of $82 million expire beginning in 2012 through 2028,
and state net operating loss carryforwards expire beginning in 2009 through 2028.
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 its 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 as of December 31 is as follows:
(in millions) 2008 2007
Gross Unrecognized Tax Benefits, Beginning of the Period ............................... $271 $ 341
Gross Increases:
Current Year Tax Positions .................................................... 14 23
Prior Year Tax Positions ...................................................... 43 26
Acquired Reserves ........................................................... 94 —
Gross Decreases:
Prior Year Tax Positions ...................................................... (29) (31)
Settlements ................................................................. (4) (87)
Statute of Limitations Lapses .................................................. (49) (1)
Gross Unrecognized Tax Benefits, End of the Period .................................... $340 $ 271
The Company classifies interest and penalties associated with uncertain income tax positions as income taxes
within its Consolidated Financial Statements. During the years ended December 31, 2008 and 2007, the
Company recognized $23 million and $28 million of interest expense, respectively. The Company had
approximately $65 million and $54 million of accrued interest, respectively, at December 31, 2008 and 2007,
which were reported in Accounts Payable and Accrued Liabilities in the Consolidated Balance Sheets. These
amounts are not included in the reconciliation above. As of December 31, 2008, the total amount of unrecognized
tax benefits that, if recognized, would affect the effective tax rate was $193 million.
The Company currently files 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 2007 and prior. The Company’s 2008 tax return is under advance review by the IRS under
its Compliance Assurance Program (CAP). With the exception of a few states, the Company is no longer subject
to income tax examinations prior to 2002 in major state and foreign jurisdictions. The Company does not believe
any adjustments that may result from these examinations will be significant.
The Company believes it is reasonably possible that its liability for unrecognized tax benefits will decrease in the
next twelve months by $138 million or less as a result of audit settlements and the expiration of statutes of
limitations in certain major jurisdictions.
11. Shareholders’ Equity
Regulatory Capital and Dividend Restrictions
The Company conducts a significant portion of its operations through subsidiaries that are subject to regulations
and standards established by their respective states of domicile. Most of these regulations and standards conform
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