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Income Taxes
6 Months Ended
Jun. 30, 2014
Income Taxes [Abstract]  
Income Taxes Disclosure

 

 

6.  INCOME TAXES 

 

The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was approximately $15 million as of June 30, 2014.  A total of approximately $8 million of interest and penalties is included in the amount of the liability for uncertain tax positions at June 30, 2014.  It is the Company’s policy to recognize interest and penalties related to unrecognized benefits in its condensed consolidated statements of income as income tax expense. 

 

The Company believes it is reasonably possible that approximately $2 million of its unrecognized tax benefit may be recognized within the next 12 months as a result of a lapse of the statute limitations and settlements with taxing authorities.

 

The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction and various state jurisdictions.  The Company has extended the federal statute of limitations through December 31, 2014 for Triad for the tax periods ended December 31, 1999, December 31, 2000, April 30, 2001, June 30, 2001, December 31, 2001, December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005, December 31, 2006 and July 25, 2007.  With few exceptions, the Company is no longer subject to state income tax examinations for years prior to 2010.  The Company’s federal income tax returns for the 2009 and 2010 tax years are currently under examination by the Internal Revenue Service (“IRS”).  The Company believes the results of these examinations will not be material to its consolidated results of operations or consolidated financial position.  During the year ended December 31, 2013, the IRS concluded its examination of the federal tax return of Community Health Systems, Inc. for the tax periods ended December 31, 2007 and 2008.  The results of these examinations did not have a material effect on the Company’s consolidated results of operations or consolidated financial position.  The Company has extended the federal statute of limitations through December 31, 2014 for Community Health Systems, Inc. for the tax periods ended December 31, 2007 and 2008, and through June 30, 2015 for the tax periods ended December 31, 2009 and 2010.

 

The Company has recorded a preliminary purchase price allocation in connection with the HMA merger resulting in goodwill of approximately $4.1 billion, which is not tax deductible for income tax purposes.  Goodwill consists of the excess of the purchase price over the fair market value of the acquired assets.  The purchase price allocation is preliminary and subject to change as additional information is obtained during the measurement period.

 

The Company’s effective tax rates were 30.0% and 28.2% for the three months ended June 30, 2014 and 2013, respectively, and 98.3% and 31.5% for the six months ended June 30, 2014 and 2013, respectively. The increase in the Company’s effective tax rate for the three months ended June 30, 2014 is primarily related to non-deductible transaction costs associated with the HMA merger. The increase in the Company’s effective tax rate for the six months ended June 30, 2014 is primarily related to the transaction fees and loss from early extinguishment of debt related to the HMA merger, creating a loss before income taxes, whereas the provision for income taxes also includes the tax utility of the income attributable to noncontrolling interests, which is disproportionate to the reported loss before income taxes.  Including the expense related to income attributable to noncontrolling interests, the effective tax rate for the six months ended June 30, 2014 and 2013 would have been 35.8% and 37.2%, respectively. 

 

Cash paid for income taxes, net of refunds received, resulted in net cash paid of $6 million and $71 million during the three months ended June 30, 2014 and 2013, respectively, and a net refund of $73 million and net cash paid of $70 million during the six months ended June 30, 2014 and 2013, respectively.