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Income Taxes
6 Months Ended
Jun. 30, 2014
Notes to Condensed Consolidated Financial Statements [Abstract]  
Income Taxes
Income Taxes
We conduct business globally and, as a result, UTC or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Belgium, Canada, China, France, Germany, Hong Kong, Italy, Japan, South Korea, Singapore, Spain, the United Kingdom and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2000.
In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management's evaluation of the facts, circumstances, and information available at the reporting date. It is reasonably possible that a net reduction within a range of $165 million to $335 million of unrecognized tax benefits may occur within the next twelve months as a result of additional worldwide uncertain tax positions, the revaluation of current uncertain tax positions arising from developments in examinations, in appeals, or in the courts, or the closure of tax statutes. See Note 14, Contingent Liabilities, for discussion regarding uncertain tax positions which are not included in this range related to previously disclosed German tax litigation.
As previously disclosed, the French Tax Authority had assessed €237 million (approximately $323 million) related to the proposed disallowance of certain recurring deductions claimed in France for tax years 2008 through 2011, with which assessment the Company disagreed. Based on ongoing resolution discussions, the Company had accrued an amount it believed to be a potential settlement amount for the matter, including potential applicability to subsequent tax years. During the quarter ended June 30, 2014, the matter was settled in an amount consistent with the accrual.
UTC tax years 2006 through 2008 are currently before the Appeals Division of the Internal Revenue Service (IRS Appeals) for resolution of certain proposed adjustments with which UTC does not agree. Settlement of these years is expected to be achieved during 2014. Review of UTC tax years 2009 and 2010 by the Examination Division of the IRS was completed during the quarter ended June 30, 2014. Examination activity for UTC tax years 2011 and 2012 is expected to commence during the third quarter of 2014.
The Company is engaged in litigation with respect to an issue involving the proper timing of deductions taken by Goodrich Corporation in its tax years 2005 and 2006, prior to its acquisition by UTC. This is a recurring issue, and the IRS may continue to challenge it in subsequent tax years until the issue is resolved. Goodrich Corporation tax years 2007 through 2010 are currently before IRS Appeals for resolution discussions regarding certain proposed adjustments with which UTC does not agree, including the recurring timing issue described above. Both the 2005 - 2006 litigation and the 2007 - 2010 appeals proceedings, together with all final computations for open tax years through 2010, are expected to be resolved during 2014. Examination activity for Goodrich Corporation tax years 2011 and 2012, prior to its acquisition by UTC, is expected to commence during the third quarter of 2014.
During the quarter ended June 30, 2014, the Examination Division of the Connecticut Department of Revenue Services completed its examination of UTC's 2010 - 2012 tax years.
As a result of completed examination activity as described above, the Company recognized non-cash gains in the quarter ended June 30, 2014 of approximately $274 million, including a pre-tax interest adjustment of $21 million. As a result of the anticipated conclusion of tax examination, appeal and litigation activity and associated re-evaluation of tax related liabilities and contingencies, we currently expect to recognize additional net gains, primarily non-cash, in the range of $210 million to $230 million prior to the end of 2014, including pre-tax interest in the range of $90 million to $110 million.
During the quarter ended June 30, 2014, we reached an agreement with a state taxing authority for the monetization of tax credits. As a result of this agreement, we recorded a gain of approximately $220 million through Other income, net in the quarter ended June 30, 2014.