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INCOME TAXES
9 Months Ended
Sep. 30, 2011
INCOME TAXES [Abstract] 
INCOME TAXES

(8)       INCOME TAXES

The Company accounts for income taxes in accordance with the accounting literature for income taxes, which requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the Consolidated Financial Statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. Quarterly, the Company assesses the likelihood that its net deferred tax assets will be recovered. Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit will not be realized.

In 2005, the Company, through its Canadian subsidiary, recorded a Canadian income tax receivable related to a refund of tax it considered probable of collecting. The potential refund related to income subjected to double taxation by the United States and originally reported to and assessed by Canada in 2001 and 2002. The Company, through the Competent Authorities of the United States and Canada requested relief from the double taxation through the Mutual Agreement procedure found in Article IX of the U.S. — Canada Income Tax Convention (the “Treaty”). At December 31, 2010, the Company continued to believe that collection of the Canadian income tax receivable was more likely than not. On February 20, 2011, the Company received notice that the Canada Revenue Agency (“CRA”) would not consider the Company's request for relief (please refer to Note 12 to the Company's Consolidated Financial Statements included in the Company's 2010 Annual Report on Form 10-K.) As of March 31, 2011, the Company could no longer conclude that collection of the Canadian income tax receivable was more likely than not and therefore derecognized the Canadian income tax receivable of $9.1 million through a charge to income tax expense during the first quarter of 2011. The Company continues to believe in the merits of its claim and that the CRA abused its discretion in refusing TeleTech Canada's request for relief from double taxation. As such, the Company is exploring options and intends to vigorously pursue any available remedies in response to the CRA decision.

During the first quarter of 2011, the Company recognized a U.S. tax refund claim (including interest) of $10.2 million and established a corresponding reserve for uncertain tax positions of $7.3 million. This refund claim relates to previously disallowed deductions included in the Company's amended 2002 U.S. Income Tax return. The net benefit of $2.9 million was a reduction to income tax expense during the first quarter of 2011. During the second quarter of 2011, the Company and the Appeals branch of the IRS reached a mediated settlement. Since the settlement involved a refund in excess of $2 million the agreement is subject to review and approval by the Joint Committee on Taxation. Nevertheless, the Company considered the uncertainty around the issue to be “effectively settled”, and during the second quarter recorded an incremental benefit of $5.8 million (adjusting the $10.2 million accrual and $7.3 million reserve for uncertain tax positions recorded in the first quarter) through tax expense. During the third quarter, the Company received additional information on the settlement from the IRS allowing it to increase its mediated settlement recorded during the second quarter. In doing so, it recorded an additional $3.1 million benefit through tax expense during the third quarter. This is in addition to the $2.9 million recorded during the first quarter and $5.8 million recorded during the second quarter, bringing the total refund settlement (including interest) to $11.8 million. This refund settlement is expected to be received during the next 12 months and is included in Income tax receivable in the accompanying Consolidated Balance Sheets as of September 30, 2011. No further adjustments to the estimated refund are expected except for the continued accrual of interest in future periods until the refund is paid.

As of September 30, 2011, the Company had $53.9 million of deferred tax assets (after a $22.9 million valuation allowance) and net deferred tax assets (after deferred tax liabilities) of $48.9 million related to the U.S. and international tax jurisdictions whose recoverability is dependent upon future profitability.

The effective tax rate for the three and nine months ended September 30, 2011 was (1.9)% and 13.4%, respectively. The effective tax rate was influenced by the mediated settlement with the IRS related to U.S. tax refund claims, a benefit related to adjusting the transfer pricing terms between Australia and the Philippines, earnings in international jurisdictions currently under an income tax holiday, and the distribution of income between the U.S. and international tax jurisdictions. The effective tax rate for the three and nine months ended September 30, 2010 was 27.7% and 26.9%, respectively.

The Company increased its reserve for uncertain tax positions during the third quarter by $1.5 million related to a change in the rate used for intercompany transactions between its Australian and Philippines operations in 2011.

The Company is currently under audit of income taxes and payroll related taxes in the Philippines for 2008. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company's Consolidated Financial Statements.