XML 65 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income taxes
9 Months Ended
Sep. 30, 2012
Income Taxes [Abstract]  
Income Tax Disclosure [Text Block]
Income Taxes:

The income tax rate of 34.8% for the nine months ended September 30, 2012 decreased 7.1 percentage points from 41.9% for the nine months ended September 30, 2011. The decrease in the income tax rate was due primarily to a $312 million charge that primarily represents interest on tax underpayments associated with the 2011 PMCC Leveraged Lease Charge that was recorded during the second quarter of 2011, and a $73 million interest benefit, recorded during the second quarter of 2012, resulting primarily from lower than estimated interest on tax underpayments related to the Closing Agreement with the IRS. The effect of these items on the nine-month income tax rate was partially offset by a reduction in certain consolidated tax benefits resulting from the third quarter of 2012 debt tender offer (see Note 9. Debt). The income tax rate of 37.0% for the three months ended September 30, 2012 increased 2.5 percentage points from 34.5% for the three months ended September 30, 2011 due primarily to the reduction in certain consolidated tax benefits resulting from the third quarter of 2012 debt tender offer. In addition, the income tax rate comparisons for the nine and three months were further impacted by: (i) the reversal of tax reserves and associated interest of $53 million due primarily to the closure in August 2012 of the IRS audit of Altria Group, Inc. and its consolidated subsidiaries' 2004 - 2006 tax years ("IRS 2004 - 2006 Audit"); (ii) the resolution of various Kraft Foods Inc., now known as Mondelēz International, Inc. ("Mondelēz"), and Philip Morris International Inc. ("PMI") tax matters in the third quarters of 2012 and 2011 as discussed further below; and (iii) the reversal of tax accruals no longer required and the expiration of statutes of limitations of $24 million during the third quarter of 2011.
As a result of the Closing Agreement, during the second quarter of 2012, Altria Group, Inc. paid $456 million in federal income taxes and related estimated interest on tax underpayments. Altria Group, Inc. also expects to pay approximately $50 million in state taxes and related estimated interest. The tax component of these payments represents an acceleration of federal and state income taxes that Altria Group, Inc. would have otherwise paid over the lease terms of these transactions. See Note 8. Finance Assets, net and Note 11. Contingencies for further discussion of the Closing Agreement and the PMCC leveraged lease benefit/charge.
Under tax sharing agreements entered into in connection with the 2007 and 2008 spin-offs between Altria Group, Inc. and its former subsidiaries Mondelēz and PMI, respectively, Mondelēz and PMI are responsible for their respective pre-spin-off tax obligations. Altria Group, Inc., however, remains severally liable for Mondelēz's and PMI's pre-spin-off federal tax obligations pursuant to regulations governing federal consolidated income tax returns, and continues to include the pre-spin-off federal income tax reserves of Mondelēz and PMI in its liability for uncertain tax positions. Altria Group, Inc. also includes corresponding receivables from Mondelēz and PMI in its assets. An additional third quarter of 2012 tax provision of $48 million for Mondelēz and PMI tax matters, resulting from the closure of the IRS 2004 - 2006 Audit, was offset by an increase to the corresponding receivables from Mondelēz and PMI, which was recorded as an increase to operating income on Altria Group, Inc.'s condensed consolidated statements of earnings for the nine and three months ended September 30, 2012. An additional third quarter of 2011 tax provision of $19 million related to various Mondelēz tax matters was offset by an increase to the corresponding receivable from Mondelēz, which was recorded as an increase to operating income on Altria Group, Inc.'s condensed consolidated statements of earnings for the nine and three months ended September 30, 2011. As a result, the Mondelēz and PMI tax matters discussed above had no impact on Altria Group, Inc.'s net earnings for the nine and three months ended September 30, 2012 and 2011.
Altria Group, Inc. is subject to income taxation in many jurisdictions. Uncertain tax positions reflect the difference between tax positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax positions with the relevant tax authorities may take many years to complete, since such timing is not entirely within the control of Altria Group, Inc. It is reasonably possible that within the next 12 months certain tax examinations will be resolved, which could result in a decrease in unrecognized tax benefits of approximately $90 million, the majority of which would relate to the unrecognized tax benefits of Mondelēz and PMI, for which Altria Group, Inc. is indemnified.