Income Taxes

Income Tax Benefit (Expense)

Income tax benefit (expense) for the years ended December 31, 2014, 2013, 2012, respectively, consists of the following components (in thousands):



	Years Ended December 31,
	Years Ended December 31,
	2014			2013			2012
Current:
Federal	$	—		$	(924	)	$	—
State and local	(86		)	(3,154		)	(1,218		)
Total current income tax (expense) benefit	(86		)	(4,078		)	(1,218		)
Deferred:
Federal	25,081			77,341			77,010
State and local	4,783			17,028			19,768
Total deferred income tax benefit	29,864			94,369			96,778
Total income tax benefit	$	29,778		$	90,291		$	95,560

Total income tax (expense) benefit was different than that computed by applying United States federal income tax rates to (loss) income before income taxes for the years ended December 31, 2014, 2013 and 2012.

For the year ended December 31, 2014, the effective tax rate to calculate the tax benefit on $166.1 million of pre-tax loss was 17.9%. The rate differs from the 35% federal statutory rate primarily due to an increase in the valuation allowance offset by a benefit related to state taxes.

For the year ended December 31, 2013, the effective tax rate to calculate the tax benefit on $193.8 million of pre-tax loss was 46.6%. The rate differs from the 35% federal statutory rate primarily due to state taxes, as well as a decrease to the valuation allowance.

For the year ended December 31, 2012, the effective tax rate to calculate the tax benefit on $248.9 million of pre-tax loss was 38.4%. The rate differs from the 35% federal statutory rate primarily due to state taxes as well as favorable provision to return permanent adjustments, offset by an increase to the valuation allowance.

A reconciliation of the Company's statutory tax rate to its effective tax rate is presented below (in percentages):



	Years Ended December 31,
	2014		2013		2012
Statutory federal income tax (benefit) rate	(35.0	)%	(35.0	)%	(35.0	)%
State income tax (benefit) expense, net of federal income tax (benefit) expense	(2.1	)	(4.8	)	(4.8	)
Restructuring charges	—		—		0.1
Other, net	0.3		0.6		(0.1	)
Valuation allowance	18.9		(7.4	)	1.4
Effective income tax (benefit) rate	(17.9	)%	(46.6	)%	(38.4	)%

Deferred Income Taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2014 and 2013 are presented below (in thousands):



	December 31, 2014			December 31, 2013
Deferred tax assets:
Federal and state tax loss carryforwards	$	95,629		$	76,570
Employee benefits	395,806			313,760
Allowance for doubtful accounts	3,613			5,290
Alternative minimum tax and other state credits	4,808			4,925
Capitalized restructuring costs	3,355			3,973
Accrued professional services	—			3,838
Deferred Revenue	3,896			1,719
Other, net	3,492			7,527
Total gross deferred tax assets	510,599			417,602
Deferred tax liabilities:
Property, plant, and equipment	235,524			269,908
Goodwill and other intangible assets	33,003			36,121
Other, net	9,808			12,498
Total gross deferred tax liabilities	278,335			318,527
Net deferred tax assets (liabilities) before valuation allowance	232,264			99,075
Valuation allowance	(259,857		)	(166,773		)
Net deferred tax liabilities	$	(27,593	)	$	(67,698	)

At December 31, 2014, the Company had gross federal NOL carryforwards of $247.2 million after taking into consideration the NOL tax attribute reduction resulting from the Company's discharge of indebtedness upon emergence from Chapter 11 protection. The Company's remaining federal NOL carryforwards will expire from 2019 to 2034. At December 31, 2014, the Company had a net, after attribute reduction, state NOL deferred tax asset of $12.9 million. The Company's remaining state NOL carryforwards will expire from 2015 to 2034. At December 31, 2014, the Company had no alternative minimum tax credit carryover and had $4.8 million in state credit carryovers. 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 it can use the NOLs even with these restrictions in place based on its current income projections.

Valuation Allowance. At December 31, 2014 and 2013, the Company established a valuation allowance against its deferred tax assets of $259.9 million and $166.8 million, respectively, which consist of a $217.8 million and $136.4 million federal allowance, respectively, and a $42.1 million and $30.4 million state allowance, respectively. During 2014 and 2013, an increase in the Company's valuation allowance of approximately $58.2 million and a decrease of approximately $10.9 million, respectively, was allocated to accumulated other comprehensive loss in the consolidated balance sheets. During 2013, as a result of the Company's change in the estimated useful lives for certain fixed assets and change in realizability of certain state credits, the Company recognized a $14.8 million reduction in the beginning of the year valuation allowance that was allocated to continuing operations.

The following is activity in the Company's valuation allowance for the years ended December 31, 2014, 2013 and 2012, respectively (in thousands):



	Years Ended December 31,
	2014			2013			2012
Balance, beginning of period	$	(166,773	)	$	(192,492	)	$	(172,875	)
(Increase) decrease allocated to other comprehensive loss	(58,254		)	10,884			(13,804		)
(Increase) decrease allocated to continuing operations	(34,830		)	14,835			(5,813		)
Balance, end of period	$	(259,857	)	$	(166,773	)	$	(192,492	)

Unrecognized Tax Benefits. As of December 31, 2014, the Company's total unrecognized tax benefits were $4.0 million, which were recorded as a reduction of the Company's federal and state NOL carryforwards. The total unrecognized tax benefits that, if recognized, would affect the effective tax rate were $3.8 million. The Company does not expect a significant increase or decrease in its unrecognized tax benefits during the next twelve months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):



Balance as of December 31, 2012	$	3,785
Additions for tax positions related to the current year	11
Additions for tax positions of prior years	1,059
Balance as of December 31, 2013	$	4,855
Additions for tax positions related to the current year	34
Additions for tax positions of prior years	205
Decrease for settlements with taxing authorities	(1,059		)
Balance as of December 31, 2014	$	4,035

The Company recognizes any interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the year ended December 31, 2014, the Company made payments of interest and penalties in the amount of $0.1 million. During the years ended December 31, 2013 and 2012, the Company did not make any payments of interest and penalties. There was nothing accrued in the consolidated balance sheets for the payment of interest and penalties at December 31, 2014 and 2013, 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 2010. 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 December 31, 2014 and 2013, respectively, the Company does not have any significant jurisdictional tax audits.