The Prudential Series Fund

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