The Prudential Series Fund
The Prudential Series Fund
The Prudential Series Fund
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
Pruco Life Insurance Company<br />
Notes to Consolidated Financial Statements<br />
7. INCOME TAXES (continued)<br />
<strong>The</strong> Company’s unrecognized tax benefits as of the date of adoption of FIN No. 48 and as of December 31, 2008 are as follows:<br />
Unrecognized tax<br />
benefits prior to<br />
2002<br />
Unrecognized<br />
tax benefits<br />
2002 and<br />
forward<br />
(in thousands)<br />
Total unrecognized<br />
tax benefits all<br />
years<br />
Amounts as of January 1, 2007 ........................................................................................................<br />
$ 45,118 $ 6,608 $ 51,726<br />
(Decreases) in unrecognized tax benefits taken in a prior period ..................................................... 0 (826) (826)<br />
Increases in unrecognized tax benefits taken in a prior period ......................................................... 0 0 0<br />
Amounts as of December 31, 2007 $ 45,118 $ 5,782 $ 50,900<br />
Increases in unrecognized tax benefits taken in a prior period<br />
0 297 297<br />
(Decreases) in unrecognized tax benefits taken in a prior period ..................................................... 0 0 0<br />
Amount as of December 31, 2008 $ 45,118 $ 6,079 $ 51,197<br />
Unrecognized tax benefits that, if recognized, would favorably impact the<br />
effective rate as of December 31, 2007 .............................................................................................<br />
$ 45,118 $ 0 $ 45,118<br />
Unrecognized tax benefits that, if recognized, would favorably impact the<br />
effective rate as of December 31, 2008 .............................................................................................<br />
$ 45,118 $ 0 $ 45,118<br />
<strong>The</strong> Company classifies all interest and penalties related to tax uncertainties as income tax expense. <strong>The</strong> Company recognized<br />
$1.2 and $0.7 million in the statement of operations during 2008 and 2007, respectively and recognized $6.0 and $4.8 million in<br />
liabilities in the statement of financial position in 2008 and 2007 respectively, for tax-related interest and penalties.<br />
<strong>The</strong> Company's liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate<br />
to tax years still subject to review by the Internal Revenue Service, or IRS, or other taxing authorities. Audit periods remain open<br />
for review until the statute of limitations has passed. Generally, for tax years which produce net operating losses, capital losses or<br />
tax credit carryforwards (―tax attributes‖), the statute of limitations does not close, to the extent of these tax attributes, until the<br />
expiration of the statute of limitations for the tax year in which they are fully utilized. <strong>The</strong> completion of review or the expiration<br />
of the statute of limitations for a given audit period could result in an adjustment to the liability for income taxes. <strong>The</strong> statute of<br />
limitations for the 2002 and 2003 tax years is set to expire in 2009. <strong>The</strong> Company does not anticipate any significant changes to<br />
its total unrecognized tax benefits within the next 12 months. Taxable years 2004 through 2008 are still open for IRS<br />
examination.<br />
On January 26, 2006, the IRS officially closed the audit of the Company’s consolidated federal income tax returns for the 1997<br />
to 2001 periods. <strong>The</strong> statute of limitations has closed for these tax years; however, there were tax attributes which were utilized<br />
in subsequent tax years for which the statute of limitations remains open.<br />
In August 2007, the IRS issued Revenue Ruling 2007-54, which included, among other items, guidance on the methodology to<br />
be followed in calculating the dividend received deduction, or DRD, related to variable life insurance and annuity contracts. In<br />
September 2007, the IRS released Revenue Ruling 2007-61. Revenue Ruling 2007-61 suspends Revenue Ruling 2007-54 and<br />
informs taxpayers that the U.S. Treasury Department and the IRS intend to address through new regulations the issues considered<br />
in Revenue Ruling 2007-54, including the methodology to be followed in determining the DRD related to variable life insurance<br />
and annuity contracts. A change in the DRD, including the possible retroactive or prospective elimination of this deduction<br />
through regulations or legislation, could increase actual tax expense and reduce the Company’s consolidated net income. <strong>The</strong>se<br />
activities had no impact on the Company’s 2007 or 2008 results.<br />
B-24