6. INCOME TAXES

The benefit from income taxes for loss from continuing operations consists of the following (in millions):



		Year Ended December 31,
	2018		2017		2016
Current:
Federal	$	1	$	-	$	5
State		(9)		5		7
		(8)		5		12
Deferred:
Federal		50		(485)		(88)
State		(53)		31		(28)
		(3)		(454)		(116)
Total benefit from income taxes for loss
from continuing operations	$	(11)	$	(449)	$	(104)

The following table reconciles the differences between the statutory federal income tax rate and the effective tax rate (dollars in millions):



	Year Ended December 31,
	2018				2017				2016
	Amount		%		Amount		%		Amount		%
Benefit from income
taxes at statutory federal rate	$	(150)	21.0	%	$	(991)	35.0	%	$	(600)	35.0	%
State income taxes, net of federal
income tax benefit		(114)	16.0			(10)	0.3			(1)	0.1
Net income attributable to
noncontrolling interests		(18)	2.5			(22)	0.8			(33)	1.9
Change in valuation allowance		212	(29.7)			26	(0.9)			(1)	0.1
Change in uncertain tax position		9	(1.3)			-	-			-	-
Federal rate change		-	-			32	(1.1)			-	-
Federal and state tax credits		(17)	2.4			(5)	0.1			(6)	0.3
Nondeductible transaction costs		-	-			-	-			3	(0.2)
Nondeductible goodwill		30	(4.2)			504	(17.8)			536	(31.2)
Nondeductible settlements		22	(3.1)			-	-			-	-
Other		15	(2.1)			17	(0.6)			(2)	0.1
Benefit from income
taxes and effective tax rate for loss
from continuing operations	$	(11)	1.5	%	$	(449)	15.8	%	$	(104)	6.1	%

The Company’s effective tax rates were 1.5%, 15.8% and 6.1% for the years ended December 31, 2018, 2017 and 2016, respectively. Including the net income attributable to noncontrolling interests, which is not tax effected in the consolidated statement of loss, the effective tax rate for the years ended December 31, 2018, 2017 and 2016 would have been 1.4%, 15.5% and 5.7% respectively. The decrease in the Company’s effective tax rate for the year ended December 31, 2018, when compared to the year ended December 31, 2017, was primarily due to the increase in valuation allowance recognized on IRC Section 163(j) interest carryforwards partially offset by the release of certain state valuation allowances on net operating loss carryforwards in certain jurisdictions. The increase in the Company’s effective tax rate for the year ended December 31, 2017, when compared to the year ended December 31, 2016, was primarily due to the difference between the non-deductible nature of certain goodwill written off in those years.

Deferred income taxes are based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities under the provisions of the enacted tax laws. Deferred income taxes as of December 31, 2018 and 2017 consist of (in millions):



	December 31,
	2018				2017
	Assets		Liabilities		Assets		Liabilities
Net operating loss and credit carryforwards	$	743	$	-	$	583	$	-
Property and equipment		-		237		-		263
Self-insurance liabilities		69		-		78		-
Prepaid expenses		-		27		-		30
Intangibles		-		134		-		128
Investments in unconsolidated affiliates		-		55		-		54
Other liabilities		-		14		-		16
Long-term debt and interest		84		-		6		-
Accounts receivable		58		-		144		-
Section 163(j) interest limitation		144		-		-		-
Accrued vacation		26		-		27		-
Other comprehensive income		4		-		9		-
Stock-based compensation		4		-		10		-
Deferred compensation		64		-		77		-
Other		15		-		89		-
		1,211		467		1,023		491
Valuation allowance		(701)		-		(489)		-
Total deferred income taxes	$	510	$	467	$	534	$	491

The Company believes that the net deferred tax assets will ultimately be realized, except as noted below. Its conclusion is based on its estimate of future taxable income and the expected timing of temporary difference reversals. The Company has gross federal net operating loss carryforwards of approximately $825 million and state net operating loss carryforwards of approximately $7.6 billion, which expire from 2019 to 2038. The Company’s tax affected federal and state net operating loss and credit carryforwards are approximately $202 million and $541 million, respectively. A valuation allowance of approximately $504 million has been recognized for federal and state net operating loss carryforwards, state credit carryforwards and state deferred tax assets that the Company does not expect to be able to utilize prior to the expiration of the carryforward period. The Company has federal and state deferred tax assets of $144 million relating to interest limitations under IRC Section 163(j) and $101 million related to certain deferred tax assets expected to be deductible as interest expense and limited in future periods. The Company has recorded a valuation allowance of $196 million relative to these deferred tax assets as of December 31, 2018. The Company also has unrecognized deferred tax assets that are included in other comprehensive income. If recognized, additional state net operating losses will be created which the Company does not expect to utilize prior to the expiration of the carryforward period. A valuation allowance of approximately $1 million has been recognized for those items. With respect to the deferred tax liability pertaining to intangibles, as included above, goodwill purchased in connection with certain of the Company’s business acquisitions is amortizable for income tax reporting purposes. However, for financial reporting purposes, there is no corresponding amortization allowed with respect to such purchased goodwill.

The valuation allowance for losses incurred in certain state jurisdictions where the Company concluded associated deferred tax assets would not be realized increased by $17 million and $104 million during the years ended December 31, 2018 and 2017, respectively.

SAB 118 disclosure

On December 22, 2017, the Tax Act was enacted into law, which significantly changes existing U.S. tax law and included many provisions applicable to us. The Tax Act made broad and complex changes to the U.S. tax code, including a permanent reduction in the U.S. federal corporate tax rate from 35% to 21% effective as of January 1, 2018 (“Rate Reduction”).

The Tax Act also revised other aspects of the U.S. tax code, which included, but were not limited to (1) creating a new limitation on deductible interest expense; (2) changing rules related to uses and limitations of net operating loss carryforwards: and (3) modifying the rules governing the deductibility of certain executive compensation.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. At December 31, 2017, the Company recorded a discrete net tax expense of $32 million primarily related to provisional amounts under SAB 118 for the remeasurement of U.S. deferred tax assets and liabilities due to Rate Reduction. The Company finalized the accounting analysis based on the guidance, interpretations, and data available as of November 30, 2018. As a result of certain state conformity to the new federal limitation on deductibility of interest expense, the Company has determined such changes impact the recorded state valuation allowances in those jurisdictions. During the three months ended December 31, 2018, the Company recorded an $18 million tax benefit from the release of certain state valuation allowances, which impacted the effective tax rate for the year ended December 31, 2018 by approximately 2.5%.

The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was approximately $7 million as of December 31, 2018. A total of approximately $4 million of interest and penalties is included in the amount of the liability for uncertain tax positions at December 31, 2018. It is the Company’s policy to recognize interest and penalties related to unrecognized benefits in its consolidated statements of loss as income tax expense.

It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and settlements with taxing authorities; however, the Company does not anticipate the change will have a material impact on the Company’s consolidated results of operations or consolidated financial position.

The following is a tabular reconciliation of the total amount of unrecognized tax benefit for the years ended December 31, 2018, 2017 and 2016 (in millions):



	Year Ended December 31,
	2018		2017		2016
Unrecognized tax benefit, beginning of year	$	18	$	18	$	15
Gross increases — tax positions in current period		11		-		4
Lapse of statute of limitations		-		-		(1)
Unrecognized tax benefit, end of year	$	29	$	18	$	18

The Company’s federal income tax returns for the 2009 and 2010 tax years have been settled with the Internal Revenue Service. The results of these examinations were not material to the Company’s consolidated results of operations or consolidated financial position. The Company’s federal income tax returns for the 2014 and 2015 tax years remain under examination by the Internal Revenue Service. The Company believes the results of these examinations will not be material to its consolidated results of operations or consolidated financial position. The Company has extended the federal statute of limitations through June 30, 2019 for Community Health Systems, Inc. for the tax periods ended December 31, 2007, 2008, 2009 and 2010, and through December 31, 2019 for the tax periods ended December 31, 2014 and 2015.

Cash paid for income taxes, net of refunds received, resulted in a net refund of $19 million and $16 million during the years ended December 31, 2018 and 2016, respectively, and net cash paid of $4 million during the year ended December 31, 2017.