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AMZN » Topics » Provision (Benefit) for Income Taxes and Deferred Tax Asset

This excerpt taken from the AMZN 8-K filed Feb 2, 2005.

Provision (Benefit) for Income Taxes and Deferred Tax Asset

 

  •   We have recorded a tax benefit for current and deferred U.S. federal, state, and foreign income taxes, classified as “Provision (benefit) for income taxes” on the consolidated statements of operations.

 

  •   We periodically evaluate the likelihood of future realization of deferred tax assets, and reduce the carrying amount of these deferred tax assets by a valuation allowance to derive a net deferred tax asset we believe is more likely than not to be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carry forward periods available to us for tax reporting purposes, and other relevant factors.

 

  •   In the fourth quarter we determined that $363 million of our deferred tax asset is realizable through future operations, and recorded a current tax benefit of $244 million to “Provision (benefit) for income taxes” in our results of operations, and a $106 million credit to “Stockholders’ Equity” on our consolidated balance sheet as of December 31, 2004.

 

  •   Our net deferred tax assets are $363 million at December 31, 2004, comprised of approximately $270 million related to our net operating loss carryforwards (NOLs) and the remainder related to temporary timing differences between tax and financial reporting.

 

  •   Classification of deferred tax assets between current and long-term asset categories is based on the expected timing of realization, and the valuation allowance is allocated ratably.

 

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  •   At December 31, 2004, our gross deferred tax assets related to our NOLs were approximately $800 million (associated with approximately $2.6 billion of NOLs, the majority of which expire between 2017 and 2024), offset by a valuation allowance on approximately $530 million due to uncertainty about their future realization. Substantially all of the remaining $530 million, if realized, would be credited to “Stockholders’ equity” rather than results of operations for financial reporting purposes since they primarily relate to tax-deductible stock-based compensation in excess of amounts recognized for financial reporting purposes.

 

  •   Significant judgment is required in making the assessment of deferred tax asset realization, and it is very difficult to predict when, if ever, our assessment may conclude that the remaining portion of our deferred tax assets is realizable.

 

  •   We expect net income for 2005 to decline because we expect a tax provision in 2005, rather than the large tax benefit we received in 2004.

 

  •   We expect our cash taxes paid in 2005 to be approximately $25 million, compared with $4 million in 2004.

 

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