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Income Taxes
9 Months Ended
Sep. 30, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The Company recorded a tax benefit on the loss from continuing operations for the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2013 and 2012 of $14.2 million, $13.4 million, $61.2 million and $55.9 million, respectively, which equates to an effective tax rate of 61.3%, 26.5%, 35.8% and 31.6%, respectively. For the three months ended September 30, 2013, the effective tax rate differs from the 35% federal statutory rate primarily due to a decrease in the valuation allowance plus state taxes. The decrease in the valuation allowance is due to a change in judgment regarding the realizability of deferred tax assets resulting primarily from the change in the timing of book depreciation due to our depreciation life study. This change in the valuation allowance resulted in $9.6 million of tax benefit during the quarter. For the three months ended September 30, 2012 and the nine months ended September 30, 2013 and 2012, the effective tax rate differs from the 35% federal statutory rate primarily due to an increase in the valuation allowance offset by state taxes. In addition, the Company recorded deferred income tax expense for the nine months ended September 30, 2013 of $6.7 million on the gain on sale of its Idaho-based operations on January 31, 2013, which is reported within discontinued operations in the statement of operations for the nine months ended September 30, 2013.
Deferred Income Taxes
At September 30, 2013, the Company had gross federal NOL carryforwards of $210.7 million after taking into consideration the NOL tax attribute reduction of $581.8 million resulting from the Company's discharge of indebtedness upon emergence from Chapter 11 protection. The Company's remaining federal NOL carryforwards will expire from 2021 to 2033. At September 30, 2013, the Company had a net, after attribute reduction, state NOL deferred tax asset of $9.8 million. At September 30, 2013, the Company had no alternative minimum tax credits. Telecom Group completed an initial public offering on February 8, 2005, which resulted in an "ownership change" within the meaning of the United States federal income tax laws addressing NOL carryforwards, alternative minimum tax credits and other similar tax attributes. The Merger and the Company's emergence from Chapter 11 protection also resulted in ownership changes. As a result of these ownership changes, there are specific limitations on the Company's ability to use its NOL carryforwards and other tax attributes. The Company believes that it can use the NOLs even with these restrictions in place.
Valuation Allowance. At September 30, 2013 and December 31, 2012, the Company established a valuation allowance against its deferred tax assets of $193.8 million and $192.5 million, respectively, which consist of a $158.1 million and $159.5 million federal allowance, respectively, and a $35.7 million and $33.0 million state allowance, respectively. During the nine months ended September 30, 2013, a decrease in the Company's valuation allowance of approximately $1.9 million was allocated to accumulated other comprehensive loss in the condensed consolidated balance sheet.
Unrecognized Tax Benefits. Unrecognized tax benefits are reserves established for probable loss contingencies that could be reasonably estimated. The Company's unrecognized tax benefits totaled $3.8 million as of September 30, 2013 and $3.8 million as of December 31, 2012. The total unrecognized tax benefits that, if recognized, would affect the effective tax rate are $3.8 million. The Company does not expect a significant increase or decrease in its unrecognized tax benefits during the next twelve months.
The Company recognizes any interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2013 and 2012, the Company did not make any payment of interest and penalties. There was nothing accrued in the condensed consolidated balance sheets for the payment of interest and penalties at September 30, 2013 and December 31, 2012, respectively, as the remaining unrecognized tax benefits would only serve to reduce the Company's current federal and state NOL carryforwards, if ultimately recognized.
Income Tax Returns
The Company and its eligible subsidiaries file consolidated income tax returns in the United States federal jurisdiction and certain consolidated, combined and separate entity tax returns, as required, with various state and local governments. The Company is no longer subject to United States federal, state and local, or non-United States income tax examinations by tax authorities for years prior to 2008. NOL carryovers from closed tax years may be subject to examination by federal or state taxing authorities if utilized in a year open to examination. As of September 30, 2013 and December 31, 2012, the Company does not have any significant additional jurisdictional tax audits.