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Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Taxes [Abstract] |
INCOME TAXES | 10. INCOME TAXES The components of the provision for income taxes for the years ended December 31, are as follows:
|  | 2011 |  |  | 2010 |  |  | 2009 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 201.7 |  |  | $ | 253.9 |  |  | $ | 337.3 |
State |  |  | 38.6 |  |  |  | 50.2 |  |  |  | 49.1 |
Federal and state deferred provision (benefit) |  |  | 334.8 |  |  |  | 61.4 |  |  |  | (24.6 | )
Uncertain tax positions and interest |  |  | (257.7 | ) |  |  | 4.0 |  |  |  | 6.7 |
Provision for income taxes |  | $ | 317.4 |  |  | $ | 369.5 |  |  | $ | 368.5 |
The reconciliations of the statutory federal income tax rate to our effective tax rate for the years ended December 31, are as follows:
|  | 2011 |  |  | 2010 |  |  | 2009 |
Federal statutory rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 3.2 |  |  |  | 5.4 |  |  |  | 3.4 |
Non-deductible expenses |  |  | 1.6 |  |  |  | 2.1 |  |  |  | 2.6 |
Uncertain tax position taxes and interest |  |  | (2.5 | ) |  |  | 0.3 |  |  |  | 0.8 |
Other, net |  |  | (2.3 | ) |  |  | (0.7 | ) |  |  | 0.8 |
Effective income tax rate |  |  | 35.0 | % |  |  | 42.1 | % |  |  | 42.6 | %
Our 2011 effective tax rate was favorably impacted by our December 2011 settlement with the IRS appeals division related to Allied’s 2000 – 2003 tax years, which contributed to a net favorable impact to our tax provision of approximately $23 million. Additionally, our 2011 tax provision was favorably impacted by the realization of tax credits and lower state rates due to changes in estimates of approximately $19 million. In 2010 and 2009 our effective income tax rate was adversely impacted by the disposition of assets that had little or no tax basis and accruals for penalties and interest on uncertain tax positions. During 2011, 2010 and 2009, we incurred charges of $7.1 million, $13.1 million and $13.5 million, respectively, for dispositions of goodwill that had no corresponding tax basis, and which are non-deductible for tax purposes. The components of the net deferred income tax asset and liability at December 31, 2011 and 2010 are as follows:
|  | 2011 |  |  | 2010 |
Deferred tax liabilities relating to: |  |  |  |  |  |  |  |
Differences between book and tax basis of property |  | $ | (913.7 | ) |  | $ | (721.7 | )
Difference between book and tax basis of intangible assets |  |  | (692.1 | ) |  |  | (702.0 | )
Basis difference due to redemption of partnership interests |  |  | (128.2 | ) |  |  | - |
Total liabilities |  | $ | (1,734.0 | ) |  | $ | (1,423.7 | )
Deferred tax assets relating to: |  |  |  |  |  |  |  |
Environmental reserves |  | $ | 331.3 |  |  | $ | 346.3 |
Accruals not currently deductible |  |  | 310.3 |  |  |  | 312.8 |
Net operating loss carryforwards, state taxes |  |  | 126.3 |  |  |  | 127.5 |
Difference between book and tax basis of other assets |  |  | 93.3 |  |  |  | 68.1 |
Deferred taxes on uncertain tax positions |  |  | 28.9 |  |  |  | 76.1 |
Other |  |  | 2.0 |  |  |  | 2.3 |
Total assets |  |  | 892.1 |  |  |  | 933.1 |
Valuation allowance |  |  | (118.1 | ) |  |  | (120.1 | )
Net deferred tax asset |  |  | 774.0 |  |  |  | 813.0 |
Net deferred tax liabilities |  | $ | (960.0 | ) |  | $ | (610.7 | )
Changes in the deferred tax valuation allowance for the years ended December 31, 2011, 2010 and 2009 are as follows:
|  | 2011 |  |  | 2010 |  |  | 2009 |
Valuation allowance, beginning of year |  | $ | 120.1 |  |  | $ | 126.5 |  |  | $ | 156.4 |
Additions charged to income |  |  | 2.1 |  |  |  | 8.3 |  |  |  | 5.2 |
Acquisitions |  |  | - |  |  |  | - |  |  |  | (2.5 | )
Usage |  |  | (4.3 | ) |  |  | (10.4 | ) |  |  | (9.3 | )
Expirations of state net operating losses |  |  | (0.3 | ) |  |  | (0.3 | ) |  |  | (17.8 | )
Other, net |  |  | 0.5 |  |  |  | (4.0 | ) |  |  | (5.5 | )
Valuation allowance, end of year |  | $ | 118.1 |  |  | $ | 120.1 |  |  | $ | 126.5 |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized after the initial recognition of the deferred tax asset. We also provide valuation allowances, as needed, to offset portions of deferred tax assets due to uncertainty surrounding the future realization of such deferred tax assets. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized. We have state net operating loss carryforwards with an estimated tax effect of $126.3 million available at December 31, 2011. These state net operating loss carryforwards expire at various times between 2012 and 2031. We believe that it is more likely than not that the benefit from certain state net operating loss carryforwards will not be realized. In recognition of this risk, at December 31, 2011, we have provided a valuation allowance of $107.5 million for certain state net operating loss carryforwards. At December 31, 2011, we also have provided a valuation allowance of $10.6 million for certain deferred tax assets. We made income tax payments (net of refunds received) of approximately $173 million, $418 million and $444 million for 2011, 2010 and 2009, respectively. Income taxes paid in 2011 reflect the favorable tax depreciation provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) that was signed into law in December 2010. The Tax Relief Act included 100% bonus depreciation for property placed in service after September 8, 2010 and through December 31, 2011 (and for certain long-term construction projects to be placed in service in 2012) and 50% bonus depreciation for property placed in service in 2012 (and for certain long-term construction projects to be placed in service in 2013). The following table summarizes the activity in our gross unrecognized tax benefits for the years ended December 31:
|  | 2011 |  |  | 2010 |  |  | 2009 |
Balance at beginning of year |  | $ | 222.8 |  |  | $ | 242.2 |  |  | $ | 611.9 |
Additions due to the acquisition of Allied |  |  | - |  |  |  | - |  |  |  | 13.3 |
Additions based on tax positions related to current year |  |  | - |  |  |  | 2.8 |  |  |  | 3.9 |
Additions for tax positions of prior years |  |  | 0.6 |  |  |  | 7.5 |  |  |  | 5.6 |
Reductions for tax positions of prior years |  |  | (162.2 | ) |  |  | (7.4 | ) |  |  | (24.1 | )
Reductions for tax positions resulting from lapse of statute of limitations |  |  | - |  |  |  | (10.4 | ) |  |  | (0.5 | )
Settlements |  |  | (6.9 | ) |  |  | (11.9 | ) |  |  | (367.9 | )
Balance at end of year |  | $ | 54.3 |  |  | $ | 222.8 |  |  | $ | 242.2 |
During 2011, we settled with the IRS appeals division, Allied’s 2000 – 2003 tax years. This included Allied’s 2002 partnership exchange issue (see - Exchange of Partnership Interests). The resolution of these tax periods reduced our gross unrecognized tax benefits by $166.2 million. We also resolved various state matters during 2011 that, in the aggregate, reduced our gross unrecognized tax benefits by $2.9 million. During 2010, the IRS concluded its examination of our 2005 – 2007 tax years. The conclusion of this examination reduced our gross unrecognized tax benefits by $1.9 million. We also resolved various state matters during 2010 that, in the aggregate, reduced our gross unrecognized tax benefits by $10.0 million. During 2009, we settled our outstanding tax dispute related to Allied’s risk management companies with both the Department of Justice (DOJ) and the IRS. This settlement reduced our gross unrecognized tax benefits by $299.6 million. During 2009, we also settled with the IRS, through an accounting method change, our outstanding tax dispute related to intercompany insurance premiums paid to Allied’s captive insurance company. This settlement reduced our gross unrecognized tax benefits by $62.6 million. In addition to these federal matters, we also resolved various state matters that, in the aggregate, reduced our gross unrecognized tax benefits during 2009 by $5.8 million. New accounting guidance for business combinations became effective for our 2009 financial statements. This new guidance changed the treatment of acquired uncertain tax liabilities. Under previous guidance, changes in acquired uncertain tax liabilities were recognized through goodwill. Under the new guidance, subsequent changes in acquired unrecognized tax liabilities are recognized through the income tax provision. As of December 31, 2011, $50.6 million of the $54.3 million of unrecognized tax benefits related to tax positions taken by Allied prior to the 2008 acquisition. Included in the balance at December 31, 2011 and 2010 are $42.9 million and $209.1 million of unrecognized tax benefits (net of the federal benefit on state issues) that, if recognized, would affect the effective income tax rate in future periods. We recognize interest and penalties as incurred within the provision for income taxes in our consolidated statements of income. Related to the unrecognized tax benefits previously noted, we recorded interest expense of approximately $12 million during 2011 and, in total as of December 31, 2011, have recognized a liability for penalties of $0.7 million and interest of $49.7 million. During 2010, we accrued interest of $19.2 million and, in total as of December 31, 2010, had recognized a liability for penalties of $1.2 million and interest of $99.9 million. During 2009, we accrued interest of $24.5 million and, in total at December 31, 2009, had recognized a liability for penalties of $1.5 million and interest of $92.3 million. The decrease in accrued interest during 2011 was due to the December 2011 settlement of uncertain tax positions related to Allied’s 2000 – 2003 tax periods. The decrease in accrued interest and penalties between 2010 and 2009 was driven mainly by the additional settlements discussed previously. Gross unrecognized tax benefits that we expect to settle in the following twelve months are in the range of $15-$30 million. It is reasonably possible that the amount of unrecognized tax benefits will increase or decrease in the next twelve months. We and our subsidiaries are subject to income tax in the U.S. and Puerto Rico, as well as income tax in multiple state jurisdictions. Our compliance with income tax rules and regulations is periodically audited by tax authorities. These authorities may challenge the positions taken in our tax filings. Thus, to provide for certain potential tax exposures, we maintain liabilities for uncertain tax positions for our estimate of the final outcome of the examinations. We also acquired Allied’s open tax periods as a result of the December 2008 acquisition. Allied is currently under examination or administrative review by various state and federal taxing authorities for certain tax years, including federal income tax audits for calendar years 2004 through 2008. During 2011, the IRS, at the examination level, concluded its review of our 2008 tax year and combined this tax period with the existing IRS appeals cycle. At present, we have our 2008 tax year and Allied’s 2004 – 2008 tax years before the IRS appeals division. Also during 2011, the IRS opened our 2009 and 2010 tax years for examination. We are also under state examination in various jurisdictions for various tax years. These state audits are ongoing. We believe that the liabilities for uncertain tax positions recorded are adequate. However, a significant assessment against us in excess of the liabilities recorded could have a material adverse effect on our consolidated financial position, results of operations or cash flows. Exchange of Partnership Interests In April 2002, Allied exchanged minority partnership interests in four waste-to-energy facilities for majority partnership interests in equipment purchasing businesses, which are now wholly owned subsidiaries. In November 2008, the IRS issued a formal disallowance to Allied contending that the exchange was instead a sale on which a corresponding gain should have been recognized. If the exchange were treated as a sale, we estimated as of September 30, 2011 it would have had a potential federal and state cash tax impact of $156.2 million plus accrued interest through September 30, 2011 of $80.7 million. In addition, the IRS had asserted a penalty of 20% on the additional income tax due. At September 30, 2011, the amount of the asserted penalty and penalty-related interest was $50.6 million. The potential tax and interest (but not penalty or penalty-related interest) for this matter were fully reserved in our consolidated balance sheets. In December 2011, we reached an agreement with the IRS appeals division to settle this issue. Under the agreement:
| • |  | We agreed to recognize 20% of the gain originally proposed by the IRS with respect to the April 2002 exchange. This will result in federal and state cash tax and interest payments of approximately $50 million, which we expect to pay during calendar year 2012; and
| • |  | We will not be required to pay any penalties or penalty-related interest.
As a result of this settlement, we decreased our 2011 tax provision by $10.6 million primarily due to the reversal of previously accrued interest. This matter also impacts Allied’s 2004 – 2008 tax years, which are still before the IRS appeals division, and we anticipate these tax periods likely will be resolved sometime during 2012. For the remaining 80% of the transaction that was accepted by the IRS as filed as part of the settlement, we have reestablished a deferred tax liability to reflect the tax effect of the excess of the net tax basis of assets in the equipment purchasing businesses over the tax basis of the partnership interests, in such entities held by the company. Methane Gas As part of its examination of Allied’s 2000 through 2008 federal income tax returns, the IRS reviewed Allied’s treatment of costs associated with its landfill operations. As a result of this review, the IRS had proposed that certain landfill costs be allocated to the collection and control of methane gas that is naturally produced within the landfill. The IRS’ position was that the methane gas produced by a landfill was a joint product resulting from the operation of the landfill and, therefore, these costs should not be expensed until the methane gas is sold or otherwise disposed. We had previously protested this matter to the IRS appeals office. During December 2011, we resolved all tax matters related to Allied’s 2000 – 2003 tax years. The company’s treatment of costs was sustained, and, therefore, no adjustment was made to the 2000 – 2003 tax years. Currently, Allied’s 2004 – 2008 tax years remain at the IRS appeals division. We believe we have several meritorious defenses, including the fact that methane gas is not actively produced for sale by us but rather arises naturally in the context of providing disposal services. Therefore, we continue to believe this issue will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. We anticipate this issue will be resolved for Allied’s 2004 – 2008 tax years sometime during 2012.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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