Unum 2013 Annual Report Download - page 39

UNUM 2013 ANNUAL REPORT / 37
Income Taxes
We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. In 2011, as
part of an Internal Revenue Service (IRS) settlement, we released a $4.1 million valuation allowance related to basis differences in foreign
subsidiaries and net operating loss carryforwards in foreign jurisdictions for which we previously believed we would not realize a tax benefit.
As of December 31, 2013 and 2012, we had no valuation allowance.
In evaluating the ability to recover deferred tax assets, we have considered all available positive and negative evidence including
past operating results, the existence of cumulative losses in the most recent years, forecasted earnings, future taxable income, and prudent
and feasible tax planning strategies. In the event we determine that we most likely would not be able to realize all or part of our deferred
tax assets in the future, an increase to the valuation allowance would be charged to earnings in the period such determination is made.
Likewise, if it is later determined that it is more likely than not that those deferred tax assets would be realized, the previously provided
valuation allowance would be reversed.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws in a multitude
of jurisdictions, both domestic and foreign. The amount of income taxes we pay is subject to ongoing audits in various jurisdictions,
and a material assessment by a governing tax authority could affect profitability.
GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in income tax returns. The evaluation of a tax position is a two step process. The first step is
to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of
the position. The second step is to measure a position that satisfies the recognition threshold at the largest amount of benefit that is greater
than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more likely than not
threshold but that now satisfy the recognition threshold are recognized in the first subsequent financial reporting period in which that
threshold is met. Previously recognized tax positions that no longer meet the more likely than not recognition threshold are derecognized
in the first subsequent financial reporting period in which that threshold is no longer met. If a previously recognized tax position is settled
for an amount that is different from the amount initially measured, the difference will be recognized as a tax benefit or expense in the
period the settlement is effective.
See Note 7 of the “Notes to Consolidated Financial Statements” contained herein.
Contingent Liabilities
On a quarterly basis, we review relevant information with respect to litigation and contingencies to be reflected in our consolidated
financial statements. An estimated loss is accrued when it is probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. It is possible that our results of operations or cash flows in a particular period could be materially affected by an
ultimate unfavorable outcome of pending litigation or regulatory matters depending, in part, on our results of operations or cash flows for
the particular period. See Note 14 of the “Notes to Consolidated Financial Statements” contained herein.
Accounting Developments
In July 2013, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) on insurance
contracts that is intended to bring greater consistency to the accounting for contracts that transfer significant risk between parties and would
require a current measure of insurance contracts, including the use of updated assumptions and discounting. The proposed ASU, which
would supersede existing guidance on accounting for insurance contracts, calls for retrospective application and would prohibit early adoption.
The proposal did not specify an effective date, but instead requested feedback on the appropriate timing.
For additional information on new accounting standards and the impact, if any, on our financial position or results of operations,
see Note 1 of the “Notes to Consolidated Financial Statements” contained herein.