eFax 2014 Annual Report Download - page 86

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Uncertain Income Tax Positions
Tax positions are evaluated in a two-
step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination.
If a tax position meets the more-likely-than-
not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax
position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies gross interest and penalties
and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets.
As of December 31, 2014 , the total amount of unrecognized tax benefits was $34.6 million , of which $32.7 million , if recognized, would affect the Company’
s effective
tax rate. As of December 31, 2013, the total amount of gross unrecognized tax benefits was $40.9 million , of which $40.9 million , if recognized, would affect the Company’
s
effective tax rate. As of December 31, 2012, the total amount of unrecognized tax benefits was $35.4 million , of which $35.4 million
, if recognized would affect the Company's
effective tax rate.
The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2014, 2013 and 2012, is as follows (in thousands):
The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of December 31, 2014
, 2013 and 2012, the
total amount of interest and penalties accrued was $2.9 million , $3.0 million and $2.3 million , respectively, which is classified as non-
current liabilities in the consolidated
balance sheets. In connection with tax matters, the Company recognized interest and penalty (benefit) expense in 2014, 2013 and 2012 of $(0.1) million , $0.7 million and
$0.5
million , respectively.
Uncertain income tax positions are reasonably possible to significantly change during the next 12 months as a result of completion of income tax audits and expiration of
statutes of limitations. At this point it is not possible to provide an estimate of the amount, if any, of significant changes in reserves for uncertain income tax positions as a result of
the completion of income tax audits that are reasonably possible to occur in the next 12 months. In addition, the Company cannot currently estimate the amount of, if any,
uncertain income tax positions which will be released in the next 12 months as a result of expiration of statutes of limitations due to ongoing audits. As a result of ongoing federal,
state and foreign income tax audits (discussed below), it is reasonably possible that our entire reserve for uncertain income tax positions for the periods under audit will be
released. It is also reasonably possible that the Company's reserves will be inadequate to cover the entire amount of any such income tax liability.
The Company has not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2014
because it
intends to permanently reinvest such earnings outside the U.S. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability may be reduced by any
foreign income taxes previously paid on these earnings and would generate foreign tax credits that would reduce the federal tax liability. As of December 31, 2014
, the cumulative
amount of earnings upon which U.S. income taxes have not been provided is approximately $436.6 million
. Determination of the amount of unrecognized deferred tax liability
related to these earnings is not practicable. Income before income taxes included income from domestic operations of $79.4 million , $61.0 million and $54.2 million
for the year
ended December 31, 2014 , 2013 and 2012, respectively, and income from foreign operations of $75.8 million , $81.7 million and $100.7 million for the year ended
December 31,
2014 , 2013 and 2012, respectively.
- 84 -
Years Ended December 31,
2014
2013
2012
Beginning balance
$
40,888
$
35,421
$
28,366
Increases related to tax positions during a prior year
919
58
1,022
Decreases related to tax positions taken during a prior year
(9,808
)
(1,519
)
(557
)
Increases related to tax positions taken in the current year
3,765
6,928
6,590
Decreases related to expiration of statute of limitations
(1,129
)
—
—
Ending balance
$
34,635
$
40,888
$
35,421