Income Taxes and Accounting for Uncertainty in Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes and Accounting for Uncertainty in Income Taxes

Income Taxes and Accounting for Uncertainty in Income Taxes

9.Income Taxes and Accounting for Uncertainty in Income Taxes

Income Taxes

DISH DBS and its domestic subsidiaries join with DISH Network in filing U.S. consolidated federal income tax returns and, in some states, combined or consolidated returns. The federal and state income tax provisions or benefits recorded by DISH DBS are generally those that would have been recorded if DISH DBS and its domestic subsidiaries had filed returns as a consolidated group independent of DISH Network. Cash is due and paid to DISH Network based on amounts that would be payable based on DISH DBS consolidated or combined group filings. Amounts are receivable from DISH Network on a basis similar to when they would be receivable from the IRS or other state taxing authorities. The amounts paid to DISH Network during the years ended December 31, 2023, 2022 and 2021 were $623 million, $490 million and $562 million, respectively.

Our income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported on our Consolidated Balance Sheets, as well as probable operating loss, tax credit and other carryforwards. Deferred tax assets are offset by valuation allowances when we believe it is more likely than not that net deferred tax assets will not be realized. We periodically evaluate our need for a valuation allowance. Determining necessary valuation allowances requires us to make assessments about historical financial information as well as the timing of future events, including the probability of expected future taxable income and available tax planning opportunities.

As of December 31, 2023, we had no net operating loss carryforwards (“NOLs”) for federal and state income tax purposes. In addition, there are $9 million of tax benefits related to credit carryforwards which are fully offset by a valuation allowance. Portions of the credit carryforwards expired in 2023.

The components of the (benefit from) provision for income taxes were as follows:

	For the Years Ended December 31,
	2023		2022		2021
	(In thousands)
Current (benefit) provision:
Federal	$	528,689	$	572,754	$	486,736
State		118,540		133,475		106,594
Foreign		2,475		(4,255)		2,387
Total current (benefit) provision		649,704		701,974		595,717
Deferred (benefit) provision:
Federal		(69,321)		(95,995)		(31,424)
State		(15,794)		(20,720)		(7,090)
Increase (decrease) in valuation allowance		515		—		(2,790)
Total deferred (benefit) provision		(84,600)		(116,715)		(41,304)
Total (benefit) provision	$	565,104	$	585,259	$	554,413

Our $2.310 billion of “Income (loss) before income taxes” on our Consolidated Statements of Operations and Comprehensive Income (Loss) included income of $13 million related to our foreign operations.

The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal tax rate:

	For the Years Ended December 31,
	2023	2022	2021
	% of pre-tax income/(loss)
Statutory rate	21.0	21.0	21.0
State income taxes, net of federal benefit	3.4	3.5	3.5
Other, net	0.1	(0.1)	(0.3)
Total (benefit) provision for income taxes	24.5	24.4	24.2

Deferred taxes arise because of the differences in the book and tax bases of certain assets and liabilities. Significant components of deferred tax assets and liabilities were as follows:

	As of December 31,
	2023		2022
	(In thousands)
Deferred tax assets:
NOL, interest, credit and other carryforwards	$	7,277	$	7,642
Accrued and prepaid expenses		22,449		8,526
Stock-based compensation		16,686		19,374
Deferred revenue		6,118		7,344
Bases differences in partnerships and cost method investments		3,360		1,281
Total deferred tax assets		55,890		44,167
Valuation allowance		(8,194)		(7,679)
Deferred tax asset after valuation allowance		47,696		36,488
Deferred tax liabilities:
Depreciation		(193,564)		(235,498)
Regulatory authorizations and other intangible amortization		(122,302)		(153,738)
Total deferred tax liabilities		(315,866)		(389,236)
Net deferred tax asset (liability)	$	(268,170)	$	(352,748)

Accounting for Uncertainty in Income Taxes

In addition to filing federal income tax returns, we and one or more of our subsidiaries file income tax returns in all states that impose an income tax and a small number of foreign jurisdictions where we have immaterial operations. We are subject to United States federal, state and local income tax examinations by tax authorities for the years beginning in 2008 due to the carryover of previously incurred NOLs. We are currently under a federal income tax examination for years 2008 through 2011, 2013 through 2016, and 2018 through 2019.

A reconciliation of the beginning and ending amount of unrecognized tax benefits included in “Long-term deferred revenue and other long-term liabilities” on our Consolidated Balance Sheets was as follows:

	For the Years Ended December 31,
Unrecognized tax benefit	2023		2022		2021
	(In thousands)
Balance as of beginning of period	$	204,378	$	198,511	$	188,141
Additions based on tax positions related to the current year		3,601		3,444		303
Additions based on tax positions related to prior years		2,892		9,523		12,095
Reductions based on tax positions related to prior years		(7,219)		(7,100)		(1,400)
Reductions based on tax positions related to settlements with taxing authorities		(834)		—		—
Reductions based on tax positions related to the lapse of the statute of limitations		(352)		—		(628)
Balance as of end of period	$	202,466	$	204,378	$	198,511

We have $164 million in unrecognized tax benefits that, if recognized, could favorably affect our effective tax rate. We do not expect any material portion of this amount to be paid or settled within the next 12 months.

Accrued interest and penalties on uncertain tax positions are recorded as a component of “Interest expense, net of amounts capitalized” and “Other, net,” respectively, on our Consolidated Statements of Operations and Comprehensive Income (Loss). During the years ended December 31, 2023, 2022 and 2021, we recorded $14 million, $8 million and $6 million in net interest and penalty expense to earnings, respectively. Accrued interest and penalties were $62 million and $49 million at December 31, 2023 and 2022, respectively. The above table excludes these amounts.