Unum 2007 Annual Report Download - page 115

Unum 2007 Annual Report 113
The cumulative effect of applying the provisions of FIN 48 as of January 1, 2007 resulted in a $22.7 million decrease in our liability for
unrecognized tax benefits, net of associated deferred tax assets. Our consolidated statements of income include the following changes in
unrecognized tax benefits during 2007 (in millions of dollars):
Balance at January 1, 2007 $ 67.4
Tax Positions Related to Current Year
Additions 104.6
Subtractions (4.8)
Tax Positions Related to Prior Years
Additions 4.4
Subtractions (10.6)
Balance at December 31, 2007 161.0
Less Tax Attributable to Temporary Items Included Above (145.8)
Total Unrecognized Tax Benefits that if Recognized Would Affect the Effective Tax Rate $ 15.2
Included at January 1, 2007 are unrecognized tax benefits of approximately $19.2 million that, if recognized, would impact our
effective tax rate. Included in the balance at January 1 and December 31, 2007, are $48.2 million and $145.8 million, respectively, of
unrecognized tax benefits for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about
the timing of such deductibility. Other than potential interest and penalties, the disallowance of the shorter deductibility period would
not affect our results of operations but would accelerate the payment of cash to the taxing authority to an earlier period.
We recognize interest expense and penalties related to unrecognized tax benefits in tax expense net of federal income tax. The total
amounts of accrued interest and penalties in the consolidated balance sheets as of January 1, 2007 and December 31, 2007 are $5.5 million
and $7.5 million, respectively. We recognized $2.0 million of interest expense and penalties related to unrecognized tax expense in our
consolidated statements of income during 2007. We had no changes to uncertain tax positions as a result of settlements or lapses in
statutes of limitations during 2007. We do not expect a significant change in our existing liability for unrecognized tax benefits during the
next 12 months.
We file federal and state income tax returns in the United States and in foreign jurisdictions. We are under continuous examination
by the Internal Revenue Service (IRS) with regard to our U.S. federal income tax returns. The current IRS examination covers our tax years
2002 through 2004 with a revenue agent’s report (RAR) expected to be issued by the IRS on those years during the first half of 2008.
Tax years subsequent to 2004 remain subject to examination by tax authorities in the U.S., and tax years subsequent to 2005 remain
subject to examination in major foreign jurisdictions. We believe sufficient provision has been made for all proposed and potential
adjustments for years that are not closed by the statute of limitations in all major tax jurisdictions and that any such adjustments would
not have a material adverse effect on our financial position, liquidity, or results of operations. However, it is possible that the resolution
of income tax matters could impact our results of operations for a particular future period.
During 2006, we reversed income tax liabilities of approximately $91.9 million related primarily to group relief benefits obtained from
the use of net operating losses in a foreign jurisdiction in which our businesses operate as the result of final determinations on those
years. Also included in 2006 operating results is income of $2.6 million before tax and $3.9 million after tax attributable to the receipt
of interest and tax refunds on prior year tax items in excess of what was previously provided.
During 2005, the IRS completed its examination of tax years 1999 through 2001 and issued its RAR. Income tax liabilities of approximately
$32.0 million that related primarily to interest on the timing of expense deductions were released in 2005, all of which was reflected as a
reduction to income tax expense.
During 2005, we also recognized $3.0 million of income before tax and $2.0 million after tax as a result of refunds received from the
IRS during the year. Additionally, we recognized an income tax benefit of approximately $10.8 million in connection with the finalization
of income tax reviews of our U.K. subsidiaries.