Penn Virginia (PVA)

Income taxes

We account for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, which requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Using this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates. We now recognize interest related to unrecognized tax benefits in interest expense, and penalties are included in income tax accrued. See Note 19, “Income Taxes.”

Income Taxes

We account for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, which requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Using this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates. We now recognize interest related to unrecognized tax benefits in interest expense, and penalties are included in income tax accrued. See Note 19, “Income Taxes.”

10. Income Taxes

The total liability for unrecognized tax benefits at September 30, 2008 was $5.5 million, including $4.1 million of tax positions which would change the effective tax rate if recognized. During the three and nine months ended September 30, 2008, the liability for unrecognized tax benefits decreased by $0.4 and $4.9 million relating to settlements with taxing authorities.

We are currently evaluating the filing status of a subsidiary in two states. If management and the states’ taxing authority determine that the subsidiary’s income is taxable in those states, we may be requested to pay taxes of approximately $2.8 million will be made within the next 12 months. We classified $2.8 million of the total liability for unrecognized tax benefits as a current liability on our consolidated balance sheet at September 30, 2008. This current liability represents our best estimate of the change in unrecognized tax benefits that we expect to incur within the next 12 months.

The 2008 effective income tax rates include the effects of settlements of liabilities for unrecognized tax benefits for the three and nine months ended September 30, 2008.

Income Taxes

We account for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, which requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Using this method, deferred tax liabilities and

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assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates.

Income Taxes

FACE="Times New Roman" SIZE="2">We account for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, which requires a company to recognize deferred tax liabilities and assets for the expected future
tax consequences of events that have been recognized in a company’s financial statements or tax returns. Using this method, deferred tax liabilities and

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assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax
rates.

8. Income Taxes

Effective January 1, 2007, we adopted FIN 48. The evaluation of whether a tax position is in accordance with FIN 48 is a two-step process. The first step is a recognition process whereby the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is a measurement process whereby a tax position that meets the more-likely-than-not recognition threshold is calculated to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement.

The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of FIN 48. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN 48. The cumulative effect of applying the provisions of FIN 48 should be reported as an adjustment to the opening balance of retained earnings for that fiscal year. The adoption of FIN 48 did not result in a transition adjustment to retained earnings; instead, $8.7 million was reclassified from deferred income taxes to a long-term liability.

The long-term liability balance at June 30, 2007 was $9.7 million, including $6.6 million of tax positions which would change the effective tax rate, if recognized. We recognize interest related to unrecognized tax benefits in interest expense, and penalties are included in income tax accrued. For the three months and six months ended June 30, 2007, we recognized $0.2 million and $0.3 million in interest and penalties. Prior to adoption of FIN 48, we classified interest on taxes as a component of income tax expense, and penalties were included in other expenses. We had accrued interest and penalties of $3.1 million as of June 30, 2007 and $2.7 million as of January 1, 2007. We do not expect a significant change in unrecognized tax benefits within the next 12 months. Tax years from 2003 forward remain open for examination by the Internal Revenue Service.

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(i) Income Taxes

On January 2, 2004, the Parent changed its tax status from a C corporation (taxable entity) to a limited liability company (non-taxable entity). With the conversion to a limited liability company on January 2, 2004, the Company is no longer subject to income tax. Prior to the conversion the Company recorded deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying balance sheets, and for operating loss and tax credit carryforwards.