Unrecognized Tax Benefits
. A reconciliation of the beginning and ending amount of gross
unrecognized tax benefits (excluding accrued interest) is as follows (dollars in thousands):
2011
2010
2009
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,896 $ 16,473 $ 47,163
Additions based on tax positions related to the current year . . .
-
-
-
Adjustments for audit settlements in the current year . . . . . . . . .
-
(1,901)
(33,775)
Additions for tax positions in prior years . . . . . . . . . . . . . . . . . . .
-
-
3,085
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . .
(833)
-
-
Adjustments due to any expiration of a statute of limitations . . .
(5,752)
(676)
-
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,311 $ 13,896 $ 16,473
During 2011, our balance of net unrecognized tax benefits decreased by $6.1 million primarily as a
result of the expiration of the statute of limitations for various tax years. During 2010, we concluded our
administrative appeal with the IRS and as a result reduced our balance of gross unrecognized tax
benefits by $2.6 million primarily related to certain tax deductions for these same tax years. During
2009, we received revenue agent reports from the IRS relating to tax years under audit. As a result of
these reports, we reduced our balance of gross unrecognized tax benefits by $30.7 million primarily
related to certain tax credits.
We estimate our balance of net unrecognized tax benefits will be reduced by $5.0 million over the
next twelve months as the statute of limitations expires for various tax years. Included in the balance at
December 31, 2011 is approximately $6.9 million that would affect our effective tax rate if recognized.
The difference between this amount and the $7.3 million ending balance of gross unrecognized tax
benefits represents the federal benefit of state tax positions.
We had approximately $1.8 million and $3.1 million of accrued interest on unrecognized tax
benefits in our balance sheets as of December 31, 2011 and 2010, respectively. We did not have any
accrued liabilities for penalties related to unrecognized tax benefits for the years ended December 31,
2011 and 2010.
We file income tax returns in the U.S. federal and various state and foreign jurisdictions. As of
December 31, 2011, we are not under examination by the IRS and are no longer subject to U.S.
federal income tax examinations for years prior to 2007 except for certain tax credit carryforwards
generated before 2007, but utilized after 2006.
In December 2010, the state of California commenced an audit of our 2008 California income tax
return. In December 2011, the state of New Mexico commenced an audit of Pogo’s 2007 New Mexico
income tax return. Also in 2011, the state of Texas informed us that an audit of our 2008 Texas
Franchise Tax return will commence in 2012. In all states except California and New Mexico, we are no
longer subject to state income tax examinations by the relevant tax authorities for years prior to 2008.
For California and New Mexico, we are no longer subject to state income tax examinations for years
prior to 2007 except for certain California tax loss and credit carryforwards generated before 2007 but
utilized after 2006.
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