Income Taxes

The Company’s income tax provision and effective tax rate were as follows:



	Successor Company			Predecessor Company				Successor Company			Predecessor Company
(in thousands, except percentages)	Three Months Ended September 30, 2018				Three Months Ended September 30, 2017			Period from June 4, 2018 through September 30, 2018			Period from January 1, 2018 through June 3, 2018			Nine Months Ended September 30, 2017
Income before income taxes	$	17,791			$	6,531		$	25,377		$	519,297		$	6,016
Effective tax rate	28.5		%		80.5		%	30.3		%	(34.1		)%	107.5		%
Provision (benefit) for income taxes	$	5,078			$	5,257		$	7,684		$	(176,859	)	$	6,465
Provision for income taxes at 21% or 35%	$	3,736			$	2,286		$	5,330		$	109,052		$	2,106
Difference between tax at effective rate versus statutory rate	$	1,342			$	2,971		$	2,354		$	(285,911	)	$	4,359

The difference between the effective tax rate and the federal statutory rate of 21.0% for the Successor Company three months ended September 30, 2018 and the Successor Company period from June 4, 2018 through September 30, 2018 primarily related to state and local income taxes, the effect of certain statutory non-deductible expenses, and the tax effect of changes in uncertain tax positions. The change in uncertain tax positions relates to the release of certain reserves because of the expiration of statutes of limitation and changes in interest accruals associated with these uncertain tax positions.

The effective tax rate for the periods ended in 2018 reflect the reduced federal income tax rate of 21% resulting from the enactment of the Tax Cuts and Jobs Act ("the Tax Act") in 2017. Under Staff Accounting Bulletin 118 ("SAB 118"), the Company recorded provisional estimates related to deferred tax implications and the impact of state income taxes in 2017 related to the enactment of the Tax Act, and the Company continues to analyze the various aspects of the Tax Act which could impact these provisional estimates. The Company expects to finalize its accounting for the Tax Act in the last quarter of 2018.

The difference between the effective tax rate and the federal statutory rate of 21.0% for the Predecessor Company period January 1, 2018 through June 3, 2018 relates to the income tax exclusion of cancellation of indebtedness income ("CODI") arising from the effectiveness of the Plan, the Company's elections to increase the tax basis in certain assets, state and local income taxes, the impact of non-deductible expenses and changes to the valuation allowance.

Under the Plan, a substantial portion of the Predecessor Company’s prepetition debt securities and other obligations were extinguished and the Company recognized CODI. The Internal Revenue Code of 1986, as amended (“IRC”), provides that a debtor in a bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any CODI realized by the debtor company as a result of the consummation of a plan of reorganization. Substantially all of the Company’s tax attributes are expected to be reduced when the statutory reduction occurs on the first day of the Company’s tax year subsequent to the date of emergence which is expected to be January 1, 2019.

IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-in losses, against future U.S. taxable income in the event of a change in ownership. The Debtors’ emergence from Chapter 11 bankruptcy proceedings is considered a change in ownership for purposes of IRC Section 382, with the limitation based on the value of the corporation as of the emergence date. The ownership changes and resulting annual limitation may result in the expiration of net operating losses or other tax attributes otherwise available, with a corresponding decrease in the Company’s valuation allowance.

In conjunction with the Plan, the Company implemented a series of internal reorganization transactions through which it transferred the assets of Old Cumulus to an indirect wholly-owned subsidiary of the reorganized Cumulus Media Inc. (see Note 1, “Nature of Business, Interim Financial Data and Basis of Presentation”). The transfer of assets for income tax purposes results in a taxable sale of assets and stock, whereby the Company receives a step up in the tax basis of a significant portion of the underlying assets transferred, resulting in a future tax benefit.

The application of fresh start accounting on June 4, 2018 resulted in the re-measurement of deferred income taxes associated with the revaluation of the Company’s assets and liabilities (see Note 3, “Fresh Start Accounting”). As a result, net deferred income tax liabilities decreased $10.6 million. The Company continues to consider whether its deferred income tax assets are more likely than not to be realized based on its ability to generate sufficient taxable income in future years. At this time, the Company has determined that any tax attribute carryovers in existence prior to the date of reorganization or generated as a result of the reorganization are not more likely than not to be realized, as a result of attribute reductions, statutory limitations on utilization, and lack of future income at Old Cumulus.

The difference between the effective tax rate and the federal statutory rate of 35.0% for the Predecessor Company three months ended September 30, 2017 primarily related to state and local income taxes, the tax effect of certain statutory non-deductible items, the tax effect of changes in uncertain tax positions and state tax law changes enacted during the period.

The difference between the effective tax rate of 107.5% and the federal statutory rate of 35.0% for the Predecessor Company nine months ended September 30, 2017 primarily related to the tax effect of stock option terminations and forfeitures, state and local incomes taxes, the tax effect of changes in uncertain tax positions and state tax law changes enacted during the period.

The Company recognizes the benefits of deferred tax assets only as its assessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC Topic 740, Income Taxes ("ASC 740"). The Company continually reviews the adequacy of the valuation allowance, and as of September 30, 2018 continues to maintain a full valuation allowance on federal and state net operating loss carryforwards for which the Company does not believe they will be able to meet the more likely than not recognition standard for recovery. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns as well as future profitability.