Income Taxes

12 Months Ended

Dec. 31, 2014

Disclosure Text Block

Income Taxes

NOTE 4INCOME TAXES

TDS' current income taxesbalancesat December 31, 2014 and 2013 were as follows:

December 31,	2014		2013
(Dollars in thousands)
Federal income taxes receivable (payable)	$	108,820	$	(20,288)
Net state income taxes receivable (payable)		4,391		2,397

Income tax expense (benefit) is summarized as follows:
Year Ended December 31,		2014		2013		2012
(Dollars in thousands)
Current
	Federal	$	(87,736)	$	181,579	$	9,705
	State		11,091		11,614		5,092
Deferred
	Federal		41,851		(65,970)		61,113
	Federal - valuation allowance adjustment		(10,816)		-		-
	State		2,208		(1,180)		(2,328)
	State - valuation allowance adjustment		38,470		-		-
		$	(4,932)	$	126,043	$	73,582

A reconciliation of TDS' income tax expense computed at the statutory rate to the reported income tax expense, and the statutory federal income tax expense rate to TDS' effective income tax expense rate is as follows:

Year Ended December 31,		2014				2013				2012
		Amount		Rate		Amount		Rate		Amount		Rate
(Dollars in millions)
Statutory federal income tax expense and rate		$	(53.3)	35.0	%	$	102.5	35.0	%	$	68.7	35.0	%
State income taxes, net of federal benefit (1)			42.8	(28.1)			10.5	3.6			8.4	4.2
Effect of noncontrolling interests			(5.8)	3.8			(1.0)	(0.4)			-	-
Gains (losses) on investments and sale of assets (2)			-	-			14.9	5.1			-	-
Correction of deferred taxes (3)			-	-			-	-			(6.1)	(3.1)
Change in federal valuation allowance (4)			(8.7)	5.7			-	-			-	-
Goodwill impairment (5)			18.3	(12.0)			-	-			-	-
Other differences, net			1.8	(1.2)			(0.9)	(0.3)			2.6	1.4
Total income tax expense and rate		$	(4.9)	3.2	%	$	126.0	43.0	%	$	73.6	37.5	%
(1)	State income taxes, net of federal benefit, include changes in unrecognized tax benefits as well as adjustments to the valuation allowance. During the third quarter of 2014 TDS recorded a $38.5 million increase to income tax expense related to a valuation allowance recorded against certain state deferred tax assets. In each interim period, TDS evaluates the available positive and negative evidence to assess whether deferred tax assets are realizable, on a more likely than not basis. During the year ended December 31, 2014, based on revised forecasts of future state income, TDS concluded that the negative evidence related to the realization of certain state deferred tax assets outweighed the positive evidence. Accordingly, TDS determined that such deferred tax assets related to certain states were not realizable, on a more likely than not basis.
(2)	Gains (losses) on investments and sale of assets represents 2013 tax expense related to the NY1 & NY2 Deconsolidation and the Divestiture Transaction.
(3)	Correction of deferred taxes reflects immaterial adjustments to correct deferred tax balances in 2012 related to tax basis and law changes that related to periods prior to 2012.
(4)	Change in federal valuation allowance relates primarily to a decrease to income tax expense in the third quarter of 2014 due to a valuation allowance reduction for federal net operating losses previously limited under loss utilization rules. Due to the shutdown of Airadigm’s consumer wireless business and resulting intercompany sale of certain assets by Airadigm to U.S. Cellular during the year (as described in Note 6 — Acquisitions, Divestitures and Exchanges), Airadigm is expected to recognize sufficient taxable income for TDS to utilize the previously limited net operating losses.
(5)	Goodwill impairment reflects an adjustment to increase income tax expense by $18.3 million related to a portion of the goodwill impairment of Suttle-Straus and the HMS reporting unit recorded in 2014 which is nondeductible for income tax purposes. See Note 7 — Intangible Assets for additional information related to the goodwill impairment.

Significant components of TDS' deferred income tax assets and liabilities at December 31, 2014 and 2013were as follows:

December 31,		2014		2013
(Dollars in thousands)
Deferred tax assets
	Current deferred tax assets	$	113,402	$	114,532
	Net operating loss (“NOL”) carryforwards		135,676		121,651
	Stock-based compensation		54,789		50,563
	Compensation and benefits - other		11,014		12,681
	Deferred rent		19,604		20,500
	Other		35,523		32,444
Total deferred tax assets			370,008		352,371
	Less valuation allowance		(113,553)		(79,064)
Net deferred tax assets			256,455		273,307
Deferred tax liabilities
	Property, plant and equipment		667,540		637,090
	Licenses/intangibles		259,865		251,578
	Partnership investments		151,123		136,581
	Other		9,724		4,956
	Total deferred tax liabilities		1,088,252		1,030,205
Net deferred income tax liability		$	831,797	$	756,898

At December 31, 2014, TDS and certain subsidiaries had $2,315.3million of state NOL carryforwards (generating a $111.3 million deferred tax asset) available to offset future taxable income. The state NOL carryforwards expire between 2015and 2034.Certain subsidiaries had federal NOL carryforwards (generating a $24.3 million deferred tax asset) available to offset their future taxable income. The federal NOL carryforwards expire between 2018 and 2034. A valuation allowance was established for certain state NOL carryforwards and federal NOL carryforwards since it is more likely than not that a portion of such carryforwards will expire before they can be utilized.

A summary of TDS' deferred tax asset valuation allowance is as follows:
		2014		2013		2012
(Dollars in thousands)
Balance at January 1,		$	79,064	$	70,502	$	49,686
	Charged to income tax expense		34,489		1,954		5,268
	Charged to other accounts		-		6,608		15,548
Balance at December 31,		$	113,553	$	79,064	$	70,502
As of December 31, 2014, the valuation allowance reduced current deferred tax assets by $5.7 million and noncurrent deferred tax assets by $107.8 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
		2014		2013		2012
(Dollars in thousands)
Unrecognized tax benefits balance at January 1,		$	30,390	$	28,420	$	28,841
	Additions for tax positions of current year		7,610		6,388		7,027
	Additions for tax positions of prior years		883		1,858		1,673
	Reductions for tax positions of prior years		(399)		(467)		(7)
	Reductions for settlements of tax positions		(312)		(1,337)		(21)
	Reductions for lapses in statutes of limitations		(356)		(4,472)		(9,093)
Unrecognized tax benefits balance at December 31,		$	37,816	$	30,390	$	28,420

Unrecognized tax benefits are included in Accrued taxes and Other deferred liabilities and credits in the Consolidated Balance Sheet.If these benefits were recognized, they would have reduced income tax expense in 2014, 2013 and 2012 by $24.6 million, $19.8million and $18.6 million, respectively, net of the federal benefit from state income taxes.

As of December 31, 2014, it is reasonably possible that unrecognized tax benefits could decrease by approximately $10 million in the next twelve months. The nature of the uncertainty relates primarily to state income tax positions and their resolution or the expiration of statutes of limitation.

TDS recognizes accrued interest and penalties related to unrecognized tax benefits in Income tax expense. The amounts charged to income tax expense related to interest and penalties resulted in an expense of$3.4 million and $0.7 million in 2014 and 2013,respectively, and a benefit of$1.5 millionin 2012. Net accrued interest and penalties were $16.2 million and $12.4 million at December 31, 2014 and 2013, respectively.

TDS and its subsidiaries file federal and state income tax returns. TDS remains subject to federal income tax audits for the tax years after 2011. With only a few exceptions, TDS is no longer subject to state income tax audits for years prior to 2010.