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Income Taxes
9 Months Ended
Mar. 29, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
As of March 29, 2015, the total gross liability for income taxes associated with uncertain tax positions was approximately $40.2 million. If fully recognized, approximately $26.5 million of the $40.2 million would impact the Company’s effective tax rate. The Company cannot make a reasonably reliable estimate of the period of payment for this liability. Absent any resolution of the on-going audit by the Internal Revenue Service (IRS) discussed below, the Company does not expect that the liability for unrecognized tax benefits will change significantly within the next 12 months.
The Company’s federal income tax returns for fiscal years 2008 to 2013 and California income tax returns for fiscal years 2008 to 2013 are open as the statutes of limitations have not yet expired or have been extended. The Company's federal income tax returns for fiscal 2010 to 2013 are currently under examination by the IRS. Additionally, the Company’s California income tax returns for fiscal years 2008 and 2009 are currently under examination by the California Franchise Tax Board. The Company is also currently under audit by various state and international taxing authorities. In foreign jurisdictions, with few exceptions, the Company is subject to examinations for all years subsequent to fiscal 2010. The Company does not expect any audits for these foreign jurisdictions to have a material effect on the results of operations or financial position.
The IRS completed its examination of the Company’s federal income tax returns for fiscal years 2008 and 2009 and the amended return filed for fiscal year 2007 and issued a 30-Day Letter in March 2014. In the 30-Day Letter, the IRS proposed adjustments related to the amount of "buy-in-payments" made by one of the international subsidiaries to the Company in connection with the cost-share agreement entered into by the Company and its international subsidiary in fiscal year 2008. The incremental tax liability asserted in the 30-Day Letter is approximately $70.0 million, excluding interest and penalties. Upon the 30th day from the issuance of the 30-Day Letter from the IRS, the Company began accruing additional interest and will continue to do so until resolution. The Company responded to the 30-Day Letter in May 2014, disagreeing with the IRS' proposed adjustments and the basis for its positions, and administratively appealed to the IRS Appeals Office. The IRS has assigned the audit to the IRS Office of Appeals in Los Angeles, California.
The Company has previously accrued for what it believes are adequate amounts of tax and related interest, if any, that may result from these state and federal examinations. Such accruals are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations with tax authorities, identification of new issues, and issuance of new regulations or case law. The ultimate resolution of these examinations could be substantially different from the Company’s estimate of any potential associated liabilities, and any resulting adjustments could have a material adverse effect on Emulex’s tax provision, net income/(loss) and cash flows.