Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes

Income Taxes

(8) Income Taxes

In connection with CenturyLink's acquisition of us on April 1, 2011, we recorded a $2.1 billion deferred tax liability under the acquisition method of accounting. Our preliminary acquisition date assignment of deferred income taxes and the related valuation allowance are subject to adjustment as discussed in Note 2—Acquisition by CenturyLink.

The CenturyLink acquisition caused an "ownership change" within the meaning of Section 382 of the Internal Revenue Code. As a result, CenturyLink's ability to use our accumulated net operating loss carryforwards, or NOLs, and certain other tax attributes to reduce future consolidated federal taxable income is subject to annual limits imposed by Section 382. Despite this, based on our evaluations and current circumstances, CenturyLink and we expect to use substantially all federal NOLs and certain other deferred tax attributes prior to their respective expirations. Thus, we have made no adjustments to our valuation allowances to reflect limitations imposed by virtue of the acquisition.

Included in income tax expense for the predecessor nine months ended September 30, 2010 was a $113 million expense related to the change in the tax treatment of the Medicare Part D subsidy as a result of the comprehensive health care reform legislation enacted in March 2010.