United Parcel Service, Inc. Annual report pursuant to Section 13 and 15(d)

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2011

The income tax expense (benefit) for the years ended December 31 consists of the following (in millions):

Income before income taxes includes the following components (in millions):

A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31 consists of the following:


	2011			2010			2009
Statutory U.S. federal income tax rate		35.0	%		35.0	%		35.0	%
U.S. state and local income taxes (net of federal benefit)		2.0			2.4			1.2
Non-U.S. tax rate differential		(0.4	)		(0.7	)		(1.6	)
Nondeductible/nontaxable items		(0.1	)		0.3			1.0
U.S. federal tax credits		(1.7	)		(1.9	)		(3.5	)
Other		(0.7	)		1.8			3.9

Effective income tax rate		34.1	%		36.9	%		36.0	%

Deferred tax liabilities and assets are comprised of the following at December 31 (in millions):


	2011			2010
Property, plant and equipment	$	3,607		$	3,335
Goodwill and intangible assets		951			853
Other		554			562

Gross deferred tax liabilities		5,112			4,750

Pension and postretirement benefits		2,106			1,864
Loss and credit carryforwards (non-U.S. and state)		259			295
Insurance reserves		696			655
Vacation pay accrual		208			191
Stock compensation		211			242
Other		635			568

Gross deferred tax assets		4,115			3,815
Deferred tax assets valuation allowance		(205	)		(207	)

Net deferred tax asset		3,910			3,608

Net deferred tax liability	$	1,202		$	1,142

Amounts recognized in the consolidated balance sheets:
Current deferred tax assets	$	611		$	659

Current deferred tax liabilities (included in other current liabilities)	$	31		$	28

Non-current deferred tax assets (included in other non-current assets)	$	118		$	97

Non-current deferred tax liabilities	$	1,900		$	1,870

We have U.S. state and local operating loss and credit carryforwards as follows (in millions):


	2011		2010
U.S. state and local operating loss carryforwards	$	859	$	1,088
U.S. state and local credit carryforwards	$	77	$	74

The following table summarizes the activity related to our unrecognized tax benefits (in millions):


	Tax			Interest			Penalties
Balance at January 1, 2009	$	388		$	97		$	10
Additions for tax positions of the current year		41			—			—
Additions for tax positions of prior years		76			27			2
Reductions for tax positions of prior years for:
Changes based on facts and circumstances		(214	)		(34	)		(3	)
Settlements during the period		(23	)		(4	)		—
Lapses of applicable statute of limitations		(2	)		—			(1	)

Balance at December 31, 2009		266			86			8

Additions for tax positions of the current year		16			—			—
Additions for tax positions of prior years		45			25			2
Reductions for tax positions of prior years for:
Changes based on facts and circumstances		(27	)		(10	)		(3	)
Settlements during the period		(6	)		(3	)		—
Lapses of applicable statute of limitations		(10	)		(3	)		—

Balance at December 31, 2010		284			95			7

Additions for tax positions of the current year		13			—			—
Additions for tax positions of prior years		17			6			—
Reductions for tax positions of prior years for:
Changes based on facts and circumstances		(50	)		(9	)		(2	)
Settlements during the period		(11	)		(19	)		(1	)
Lapses of applicable statute of limitations		(1	)		—			(1	)

Balance at December 31, 2011	$	252		$	73		$	3