Income Taxes

Income tax expense (benefit) for the Successor Company year ended December 31, 2019, Successor Company period June 4, 2018 through December 31, 2018, and the Predecessor Company period January 1, 2018 through June 3, 2018 consisted of the following (dollars in thousands):



	Successor Company					Predecessor Company
	Year Ended December 31, 2019		Period from June 4, 2018 through December 31, 2018				Period from January 1, 2018 through June 3, 2018
Current income tax expense
Federal	$	10,952	$	6,170			$	(1,430	)
State and local	2,656		8,888				4,026
Total current income tax expense	$	13,608	$	15,058			$	2,596

Deferred income tax expense (benefit)
Federal	$	6,999	$	(20,641	)		$	(138,311	)
State and local	1,656		(6,770		)		(41,144		)
Total deferred tax	8,655		(27,411		)		(179,455		)
Total income tax expense (benefit)	$	22,263	$	(12,353	)		$	(176,859	)

Total income tax expense (benefit) differed from the amount computed by applying the federal statutory tax rate of 21.0% for the Successor Company year ended December 31, 2019, and Successor Company period June 4, 2018 through December 31, 2018 and the Predecessor Company period January 1, 2018 through June 3, 2018, as a result of the following (dollars in thousands):



	Successor Company						Predecessor Company
	Year Ended December 31, 2019			Period from June 4, 2018 through December 31, 2018			Period from January 1, 2018 through June 3, 2018
Computed income tax expense at federal statutory rate on pre-tax income	$	17,539		$	10,284		$	109,052
State income tax expense, net of federal tax benefit	4,415			7,493			(25,288		)
Bankruptcy costs	446			(19,088		)	12,286
Change in state tax rates	—			(819		)	78
Section 162 disallowance	936			472			187
Change in valuation allowance	—			(104,629		)	29,188
Worthless stock loss	—			—			(115,439		)
Tax effect of sale of assets	—			72,797			(73,205		)
Cancellation of debt income	—			22,087			(152,099		)
Other reorganization charges	—			—			35,331
Change in uncertain tax positions	—			(2,733		)	—
Provision to return	(1,564		)	1,244			—
Other adjustments	491			539			3,050
Net income tax expense (benefit)	$	22,263		$	(12,353	)	$	(176,859	)

The Tax Cuts and Jobs Act ("the Act") was enacted on December 22, 2017. The Act, among other changes, reduced the US federal corporate tax rate from 35% to 21% effective January 1, 2018. As of December 31, 2018, the Company finalized its accounting for the Act and recorded an adjustment to deferred tax benefit of approximately $0.9 million during 2018 related to the remeasurement of deferred tax assets and liabilities.

Under the Plan of reorganization adopted upon emergence from bankruptcy, a substantial portion of the Predecessor Company's prepetition debt securities and other obligations were extinguished and the Company recognized cancellation of debt income ("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 Predecessor Company's unutilized tax attributes were eliminated as a result of the statutory reduction that occurs on the first day of the Company's tax year subsequent to the date of emergence.

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 Successor Company. The transfer of assets for income tax purposes results in a taxable sale of assets, whereby the Company receives a step up in the tax basis of the underlying assets transferred, resulting in a future tax benefit. Additionally, the application of fresh start accounting on the Effective Date resulted in the re-measurement of deferred income taxes associated with the revaluation of the Company's assets and liabilities.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2019 and 2018 are presented below (dollars in thousands):



	2019		2018
Deferred income tax assets:
Accounts receivable	$	1,332	$	962
Leases	42,374		—
Other liabilities	4,980		7,076
Debt costs	841		—
Interest limitation	3,966		1,335
Tax credits	—		41
Net operating loss	—		8,304
Total deferred income tax assets before valuation allowance	53,493		17,718
Less: valuation allowance	—		—
Total deferred tax assets	$	53,493	$	17,718
Deferred income tax liabilities:
Intangible assets	$	12,992	$	6,610
Property and equipment	22,465		23,492
Leases	36,666		—
Other	2,408		—
Total deferred income tax liabilities	$	74,531	$	30,102
Total net deferred income tax liabilities	$	21,038	$	12,384

Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences between the tax and financial reporting bases of our assets and liabilities and other tax attributes. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse.

As of December 31, 2019 and 2018, the Company did not record a valuation allowance because of the net deferred tax liability position of the Company and expected future taxable income.

As of December 31, 2019, the Company did not have any federal or state net operating loss carryforwards as all remaining carryforwards from the prior year were utilized during the year ended December 31, 2019. As of December 31, 2019, the Company had federal interest expense disallowance carryforwards of $15.0 million, which were available to offset future taxable income and had an indefinite carryforward period. The Company had state interest expense disallowance carryforwards in certain jurisdictions of $849.3 million, which were available to offset future taxable income and had an indefinite carryforward period.

The Company records interest and penalties related to uncertain tax positions in income tax expense. For interest and penalties, the Company recorded income tax expense of $0.2 million for the Successor Company year ended December 31, 2019, income tax benefit of $0.3 million for the Successor Company period from June 4, 2018 through December 31, 2018 and income tax expense of $0.1 million for the Predecessor Company period January 1, 2018 through June 3, 2018. As of December 31, 2019 and 2018, the total interest and penalties accrued was $0.3 million and $0.1 million, respectively.

The total uncertain tax positions and accrued interest and penalties as of December 31, 2019 and 2018 were $5.9 million and $5.8 million, respectively. The uncertain tax positions and accrued interest and penalties are presented as non-current liabilities, as payments are not anticipated within one year of the balance sheet date. These non-current income tax liabilities are recorded in other long-term liabilities in the Consolidated Balance Sheets. The $5.9 million as of December 31, 2019 represents the uncertain tax positions and accrued interest and penalties that, if recognized, would favorably affect the effective income tax rate in future periods. As of December 31, 2019, the Company does not believe that the uncertain tax positions will significantly change within the next 12 months as a result of the settlement of tax audits. Interest and penalties accrued on uncertain tax positions are released upon the expiration of statutes of limitations.

All federal income tax returns are closed for tax years through 2015. For the majority of state and local tax jurisdictions in which the Company is subject to income tax audits, tax years through 2015 have been closed.

The following table reconciles uncertain tax positions during the relevant years (dollars in thousands):



	Successor Company						Predecessor Company
	Year Ended December 31, 2019			Period from June 4, 2018 through December 31, 2018			Period from January 1, 2018 through June 3, 2018
Balance at beginning of period	$	5,787		$	8,466		$	8,587
Increases for prior year tax positions	—			—			176
Decreases for prior year tax positions	(120		)	(834		)	(297		)
Decreases relating to settlements with taxing authorities and other	(16		)	(73		)	—
Decreases due to lapse of statute of limitations	—			(1,772		)	—
Balance at end of period	$	5,651		$	5,787		$	8,466