ED » Topics » Uncertain Tax Positions

This excerpt taken from the ED 10-K filed Feb 23, 2009.

Uncertain Tax Positions

In January 2007, the Companies adopted FIN 48. This interpretation clarifies the accounting for uncertain tax positions in accordance with FASB Statement No. 109. Under the interpretation, an enterprise is not allowed to recognize, in its financial statements, the benefit of a tax position unless that position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position.

The IRS has essentially completed its field audits of the Companies’ federal income tax returns through 2007. The Companies’ federal income tax returns for 2002 through 2007

 

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reflect certain tax positions with which the IRS does not or may not agree, including tax positions with respect to the deduction of certain construction-related costs for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The field audits of the Companies’ New York State income tax returns have been completed through 2005. Any adjustments to federal income tax returns will result in the Companies filing the federal audit changes with New York State to incorporate in the applicable state income tax returns.

The Companies’ uncertain tax positions include the “simplified service cost method” (SSCM) used to determine the extent to which construction-related costs could be deducted in 2002 through 2005. In July 2008, the IRS entered into a closing agreement with Con Edison covering the Companies’ use of the SSCM to determine the extent to which construction- related costs could be deducted in 2002 through 2004. The closing agreement does not cover 2005, the last year for which SSCM is an uncertain tax position. The Companies do not expect the required repayment, with interest, to the IRS of their SSCM tax benefits for 2002 through 2005 to exceed the $160 million ($147 million of which is attributable to Con Edison of New York) the Companies paid to the IRS in June 2007 as a deposit for the repayment. Repayment of the SSCM tax benefits would not affect the Companies’ results of operations because deferred taxes have been previously provided for the related temporary differences between the SSCM deductions taken for federal income tax purposes and the corresponding amounts charged to expense for financial reporting purposes. The Companies notified New York State of the closing agreement with the IRS applicable to the years 2002 through 2004 and, in December 2008, made a payment of $34 million, including interest of $12 million ($31 million, including interest of $10 million, is attributable to Con Edison of New York) in settlement of the issue for those years.

Upon adoption of FIN 48, Con Edison and Con Edison of New York reclassified previously recorded tax liabilities of $151 million and $139 million, respectively, which primarily related to SSCM, to a liability for uncertain tax positions. At December 31, 2008 and 2007, the liabilities for uncertain tax positions for Con Edison were $118 million and $155 million, respectively, and for Con Edison of New York were $108 million and $142 million, respectively, and accrued interest on the liabilities amounted to $18 million and $35 million for Con Edison, respectively, and $15 million and $31 million for Con Edison of New York, respectively. The closing agreement with the IRS and payment to New York State in settlement of SSCM for years 2002 through 2004 resulted in the decrease in accrued interest balances for uncertain tax positions. The Companies recognize interest accrued related to the liability for uncertain tax positions in interest expense and penalties, if any, in operating expenses in the Companies’ consolidated income statements. In 2008, the Companies recognized an immaterial amount of interest expense for uncertain tax positions. In 2007, Con Edison recognized interest expense for uncertain tax positions of $11 million, of which $9 million is attributable to Con Edison of New York.

 

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for Con Edison and Con Edison of New York follows:

 

     Con Edison     Con Edison of New York  
(Millions of Dollars)        2008             2007             2008             2007      

Balance at the beginning of the year

   $ 155     $ 151     $ 142     $ 139  

Additions based on tax positions related to the current year

     -       -       -       -  

Additions based on tax positions of prior years

     -       19       -       17  

Reductions for tax positions of prior years

     (14 )     (15 )     (13 )     (14 )

Settlements

     (23 )     -       (21 )     -  

Balance at the end of the year

   $ 118     $ 155     $ 108     $ 142  

 

The Companies do not expect the total amounts of uncertain tax positions or unrecognized tax benefits to significantly increase or decrease within the next 12 months.

This excerpt taken from the ED 10-Q filed Nov 7, 2008.

Uncertain Tax Positions

Reference is made to “Uncertain Tax Positions” in Note L to the financial statements included in Item 8 of the Form 10-K.

 

In July 2008, the IRS entered into a closing agreement with Con Edison covering the Companies’ use of the “simplified service cost method” (SSCM) to determine the extent to which construction-related costs could be deducted in 2002 through 2004. The closing agreement does not cover 2005, the last year for which SSCM is an uncertain tax position. The Companies do not expect the required repayment, with interest, to the IRS of their SSCM tax benefits for 2002 through 2005 to exceed the $160 million ($147 million of which is attributable to Con Edison of New York) the Companies paid to the IRS in June 2007 as a deposit for the repayment.

 

This excerpt taken from the ED 10-Q filed Aug 7, 2008.

Uncertain Tax Positions

Reference is made to “Uncertain Tax Positions” in Note L to the financial statements included in Item 8 of the Form 10-K.

 

In July 2008, the IRS entered into a closing agreement with Con Edison covering the Companies use of the “simplified service cost method” (SSCM) to determine the extent to which construction-related costs could be deducted in 2002 through 2004. The closing agreement does not cover 2005, the last year for which SSCM is an uncertain tax position. The Companies do not expect the required repayment, with interest, to the IRS of their SSCM tax benefits for 2002 through 2005 to exceed the $160 million ($147 million of which is attributable to Con Edison of New York) the Companies paid to the IRS in June 2007 as a deposit for the repayment.

 

These excerpts taken from the ED 10-K filed Feb 22, 2008.

Uncertain Tax Positions

In January 2007, the Companies adopted FIN 48. This interpretation clarifies the accounting for uncertain tax positions in accordance with FASB Statement No. 109. Under the interpretation, an enterprise is not allowed to recognize, in its financial statements, the benefit of a tax position unless that position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position.

 

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The IRS has essentially completed its field audits of the Companies’ federal income tax returns through 2006. The Companies’ federal income tax returns for 2002 through 2006 reflect certain tax positions with which the IRS does not or may not agree, including tax positions with respect to the deduction of certain construction-related costs for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The field audits of the Companies’ New York state income tax returns have been completed through 2002. Any adjustments to federal income tax returns will result in the Companies filing the federal audit changes with New York state to incorporate in the applicable state income tax returns.

The Companies’ uncertain tax positions include the “simplified service cost method” (SSCM) used to determine the extent to which construction-related costs could be deducted in 2002 through 2005. The Companies expect that they will be required to repay, with interest, a portion of their past SSCM tax benefits ($316 million, of which $288 million is attributable to Con Edison of New York) and to capitalize and depreciate over a period of years costs they previously deducted under SSCM. Interest on all past SSCM tax benefits for Con Edison and Con Edison of New York would be approximately $103 million and $94 million, respectively. Repayment of the SSCM tax benefits would not otherwise affect the Companies’ results of operations because deferred taxes have been previously provided for the related temporary differences between the SSCM deductions taken for federal income tax purposes and the corresponding amounts charged to expense for financial reporting purposes.

In June 2007, Con Edison paid $160 million to the Internal Revenue Service, $147 million of which is attributable to Con Edison of New York, as a deposit for the repayment, including related interest, that the Companies expect will be required with respect to the past SSCM benefits. As a result, for federal income tax purposes, interest will continue to accrue only on the portion of the liability, if any, that exceeds the deposit. Con Edison and Con Edison of New York have recorded the deposit as a noncurrent asset on their consolidated balance sheet.

Upon adoption of FIN 48, Con Edison and Con Edison of New York reclassified previously recorded tax liabilities of $151 million and $139 million, respectively, which primarily related to SSCM, to a liability for uncertain tax positions. At December 31, 2007, the liabilities for uncertain tax positions for Con Edison and Con Edison of New York were $155 million and $142 million, respectively, and accrued interest on the liabilities amounted to $35 million and $31 million, respectively. The Companies recognize interest accrued related to the liability for uncertain tax positions in interest expense and penalties, if any, in operating expenses in the Companies’ consolidated income statements. In 2007, Con Edison recognized interest expense for uncertain tax positions of $11 million, of which $9 million is attributable to Con Edison of New York.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for Con Edison and Con Edison of New York follows:

 

(Millions of Dollars)    Con Edison     

Con Edison of

New York

 

Balance at January 1, 2007

   $ 151      $ 139  

Additions based on tax positions related to the current year

     -        -  

Additions based on tax positions of prior years

     19        17  

Reductions for tax positions of prior years

     (15 )      (14 )

Balance at December 31, 2007

   $ 155      $ 142  

The Companies do not expect the total amounts of uncertain tax positions or unrecognized tax benefits to significantly increase or decrease within the next 12 months.

Uncertain Tax Positions

STYLE="margin-top:0px;margin-bottom:0px">In January 2007, the Companies adopted FIN 48. This interpretation clarifies the accounting for uncertain tax positions in accordance with FASB Statement No. 109. Under the
interpretation, an enterprise is not allowed to recognize, in its
financial statements, the benefit of a tax position unless that position is more likely than not to be sustained upon examination by taxing
authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position.

 


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Notes to the Financial Statements — Continued

STYLE="margin-top:0px;margin-bottom:0px"> 



The IRS has essentially completed its field audits of the Companies’ federal income tax returns through 2006. The Companies’ federal income tax returns for
2002 through 2006 reflect certain tax positions with which the IRS does not or may not agree, including tax positions with respect to the deduction of certain construction-related costs for which the ultimate deductibility is highly certain but for
which there is uncertainty about the timing of such deductibility. The field audits of the Companies’ New York state income tax returns have been completed through 2002. Any adjustments to federal income tax returns will result in the Companies
filing the federal audit changes with New York state to incorporate in the applicable state income tax returns.

The Companies’ uncertain tax positions include
the “simplified service cost method” (SSCM) used to determine the extent to which construction-related costs could be deducted in 2002 through 2005. The Companies expect that they will be required to repay, with interest, a portion of
their past SSCM tax benefits ($316 million, of which $288 million is attributable to Con Edison of New York) and to capitalize and depreciate over a period of years costs they previously deducted under SSCM. Interest on all past SSCM tax benefits
for Con Edison and Con Edison of New York would be approximately $103 million and $94 million, respectively. Repayment of the SSCM tax benefits would not otherwise affect the Companies’ results of operations because deferred taxes have been
previously provided for the related temporary differences between the SSCM deductions taken for federal income tax purposes and the corresponding amounts charged to expense for financial reporting purposes.

STYLE="margin-top:13px;margin-bottom:0px">In June 2007, Con Edison paid $160 million to the Internal Revenue Service, $147 million of which is attributable to Con Edison of New York, as a deposit for the repayment,
including related interest, that the Companies expect will be required with respect to the past SSCM benefits. As a result, for federal income tax purposes, interest will continue to accrue only on the portion of the liability, if any, that exceeds
the deposit. Con Edison and Con Edison of New York have recorded the deposit as a noncurrent asset on their consolidated balance sheet.

Upon adoption of FIN 48, Con
Edison and Con Edison of New York reclassified previously recorded tax liabilities of $151 million and $139 million, respectively, which primarily related to SSCM, to a liability for uncertain tax positions. At December 31, 2007, the
liabilities for uncertain tax positions for Con Edison and Con Edison of New York were $155 million and $142 million, respectively, and accrued interest on the liabilities amounted to $35 million and $31 million, respectively. The Companies
recognize interest accrued related to the liability for uncertain tax positions in interest expense and penalties, if any, in operating expenses in the Companies’ consolidated income statements. In
2007, Con
Edison recognized interest expense for uncertain tax positions of $11 million, of which $9 million is attributable to Con Edison of New York.

A reconciliation of
the beginning and ending amounts of unrecognized tax benefits for Con Edison and Con Edison of New York follows:

 








































































(Millions of Dollars)  Con Edison   

Con Edison of

STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center">New York

 

Balance at January 1, 2007

  $151   $139 

Additions based on tax positions related to the current year

   -    - 

Additions based on tax positions of prior years

   19    17 

Reductions for tax positions of prior years

   (15)   (14)

Balance at December 31, 2007

  $155   $142 

The Companies do not expect the total amounts of uncertain tax positions or unrecognized tax benefits to significantly
increase or decrease within the next 12 months.

This excerpt taken from the ED 10-Q filed Nov 1, 2007.

Uncertain Tax Positions

Reference is made to Note H to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q for information about the Companies’ January 2007 adoption of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48).

 

The Companies’ uncertain tax positions include use of the “simplified service cost method” (SSCM) to determine the extent to which construction-related costs could be deducted in 2002 through 2005. The Companies expect that they will be required to repay, with interest, a portion of their past SSCM tax benefits ($323 million, of which $295 million is attributable to Con Edison of New York) and to

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

capitalize and depreciate over a period of years costs they previously deducted under SSCM. Interest on all past SSCM tax benefits for Con Edison and Con Edison of New York could be approximately $101 million and $92 million, respectively. Repayment of the SSCM tax benefits would not otherwise affect the Companies’ results of operations because deferred taxes have been previously provided for the related temporary differences between the SSCM deductions taken for federal income tax purposes and the corresponding amounts charged to expense for financial reporting purposes.

 

At September 30, 2007, the liabilities for uncertain tax positions for Con Edison and Con Edison of New York were $156 million and $142 million, respectively, and accrued interest on the liabilities amounted to $33 million and $29 million, respectively. The Companies recognize interest accrued related to the liability for uncertain tax positions in interest expense and penalties, if any, in operating expenses in the Companies’ consolidated income statements. The Companies’ recognized interest expense for uncertain tax positions for the three and nine months ended September 30, 2007 were as follows:

 

     For the Three Months
Ended September 30, 2007
    For the Nine Months
Ended September 30, 2007
(Millions of Dollars)    Con Edison    Con Edison of
New York
    Con Edison    Con Edison of
New York

Interest expense

   $ 1    $ 1        $ 11    $ 8

 

In June 2007, Con Edison paid $160 million to the Internal Revenue Service, $147 million of which is attributable to Con Edison of New York, as a deposit for the repayment, including related interest, that the Companies expect will be required with respect to the past SSCM benefits. As a result, for federal income tax purposes, interest will continue to accrue only on the portion of the liability, if any, that exceeds the deposit. Con Edison and Con Edison of New York have recorded the deposit as a noncurrent asset on their consolidated balance sheet.

 

The Companies do not expect the total amounts of uncertain tax positions to significantly increase or decrease within the next 12 months.

 

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This excerpt taken from the ED 10-Q filed Aug 2, 2007.

Uncertain Tax Positions

Reference is made to Note H to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q for information about the Companies’ January 2007 adoption of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48).

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

The Companies’ uncertain tax positions include use of the “simplified service cost method” (SSCM) to determine the extent to which construction-related costs could be deducted in 2002 through 2005. The Companies expect that they will be required to repay, with interest, a portion of their past SSCM tax benefits ($331 million, of which $303 million is attributable to Con Edison of New York) and to capitalize and depreciate over a period of years costs they previously deducted under SSCM. Interest on all past SSCM tax benefits for Con Edison and Con Edison of New York could be approximately $99 million and $90 million, respectively. Repayment of the SSCM tax benefits would not otherwise affect the Companies’ results of operations because deferred taxes have been previously provided for the related temporary differences between the SSCM deductions taken for federal income tax purposes and the corresponding amounts charged to expense for financial reporting purposes.

 

At June 30, 2007, the liabilities for uncertain tax positions for Con Edison and Con Edison of New York were $147 million and $134 million, respectively, and accrued interest on the liabilities amounted to $32 million and $28 million, respectively. The Companies recognize interest accrued related to the liability for uncertain tax positions in interest expense and penalties, if any, in operating expenses in the Companies’ consolidated income statements. The Companies’ recognized interest expense for uncertain tax positions for the three and six months ended June 30, 2007 were as follows:

 

     For the Three Months
Ended June 30, 2007
   For the Six Months
Ended June 30, 2007
(Millions of Dollars)    Con
Edison
   Con Edison
of New York
   Con
Edison
   Con Edison
of New York

Interest expense

   $ 6    $ 3    $ 10    $ 7

 

In June 2007, Con Edison paid $160 million to the Internal Revenue Service, $147 million of which is attributable to Con Edison of New York, as a deposit for the repayment, including related interest, that the Companies expect will be required with respect to the past SSCM benefits. As a result, for federal income tax purposes, interest will continue to accrue only on the portion of the liability, if any, that exceeds the deposit. Con Edison and Con Edison of New York have recorded the deposit as a noncurrent asset on their consolidated balance sheet.

 

The Companies do not expect the total amounts of uncertain tax positions to significantly increase or decrease within the next 12 months.

 

This excerpt taken from the ED 10-Q filed May 10, 2007.

Uncertain Tax Positions

In January 2007, the Companies adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48). This interpretation clarifies the accounting for uncertain tax positions in accordance with FASB Statement No. 109. Under the interpretation, an enterprise would not be allowed to recognize, in its financial statements, the benefit of a tax position unless that position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position.

 

The IRS has essentially completed its audits of the Companies’ federal income tax returns through 2001 and for tax year 2005. The Companies’ federal income tax returns for 2002 through 2004, which the IRS is reviewing, reflect certain tax positions with which the IRS does not or may not agree, including tax positions with respect to the deduction of certain construction-related costs for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

The Companies used the “simplified service cost method” (SSCM) to determine the extent to which construction-related costs could be deducted in 2002 through 2005, and as a result reduced their current tax expense by $340 million, of which $310 million is attributable to Con Edison of New York. In August 2005, the IRS issued Revenue Ruling 2005-53 with respect to when federal income tax deductions can be taken for certain construction-related costs. The Companies expect that they will be required to repay, with interest, a portion of their past SSCM tax benefits and to capitalize and depreciate over a period of years costs they previously deducted under SSCM. Interest on all past SSCM tax benefits for Con Edison and Con Edison of New York would be approximately $90 million and $82 million, respectively. Repayment of the SSCM tax benefits would not otherwise affect the Companies’ results of operations because deferred taxes have been previously provided for the related temporary differences between the SSCM deductions taken for federal income tax purposes and the corresponding amounts charged to expense for financial reporting purposes.

 

Upon adoption of FIN 48, Con Edison and Con Edison of New York reclassified previously recorded tax liabilities of $142 million and $131 million, respectively, which primarily related to SSCM, to a liability for uncertain tax positions. At March 31, 2007, the liabilities for uncertain tax positions for Con Edison and Con Edison of New York were $139 million and $ 128 million, respectively, and accrued interest on the liabilities amounted to $29 million and $25 million, respectively. The Companies recognize interest accrued related to the liability for uncertain tax positions in interest expense and penalties, if any, in operating expenses in the Companies’ consolidated income statements. In the three months ended March 31, 2007, Con Edison and Con Edison of New York recognized interest expense for uncertain tax positions of approximately $4 million.

 

The Companies do not expect the total amounts of uncertain tax positions to significantly increase or decrease within the next 12 months.

 

The adoption of FIN 48 did not have a material impact on the Companies’ financial position, results of operations or liquidity.

 

This excerpt taken from the ED 10-K filed Feb 21, 2007.

Uncertain Tax Positions

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (FIN 48). This interpretation clarifies the accounting for uncertain tax positions in accordance with FASB Statement No. 109 and becomes effective for fiscal years beginning after December 15, 2006. Under the interpretation, an enterprise would not be allowed to recognize, in its financial statements, the benefit of a tax position unless that position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position. The IRS has essentially completed its audits of the Companies’ federal income tax returns through 2001 and for tax year 2005. The Companies’ federal income tax returns for 2002 through 2004, which the IRS is reviewing, reflect certain tax positions with which the IRS does not or may not agree, including tax positions with respect to Con Edison’s leveraged lease transactions (see Note J) and the deduction of certain construction related costs discussed above. The adoption of FIN 48 is not expected to have a material impact on the Companies’ financial position, results of operations or liquidity.

 

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