Note 14: Income Taxes



Components of Income Tax Expense
Year ended December 31 (in millions)	2016		2015		2014
Current Expense (Benefit):
Federal	$	3,190	$	3,210	$	2,392
State	480		570		174
Foreign	194		221		142
	3,864		4,001		2,708
Deferred Expense (Benefit):
Federal	1,192		890		1,000
State	154		66		173
Foreign	98		2		(8		)
	1,444		958		1,165
Income tax expense	$	5,308	$	4,959	$	3,873

Our income tax expense differs from the federal statutory amount because of the effect of the items detailed in the table below.



Year ended December 31 (in millions)	2016			2015			2014
Federal tax at statutory rate	$	5,024		$	4,680		$	4,363
State income taxes, net of federal benefit	373			326			329
Foreign income taxes, net of federal credit	65			13			—
Nontaxable income attributable to noncontrolling interests	(128		)	(69		)	(62		)
Adjustments to uncertain and effectively settled tax positions, net	24			15			(408		)
Accrued interest on uncertain and effectively settled tax positions, net	17			73			(235		)
Other	(67		)	(79		)	(114		)
Income tax expense	$	5,308		$	4,959		$	3,873

We base our provision for income taxes on our current period income, changes in our deferred income tax assets and liabilities, income tax rates, changes in estimates of our uncertain tax positions, and tax planning opportunities available in the jurisdictions in which we operate. We recognize deferred tax assets and liabilities when there are temporary differences between the financial reporting basis and tax basis of our assets and liabilities and for the expected benefits of using net operating loss carryforwards. When a change in the tax rate or tax law has an impact on deferred taxes, we apply the change based on the years in which the temporary differences are expected to reverse. We record the change in our consolidated financial statements in the period of enactment.

The determination of the income tax consequences of a business combination includes identifying the tax basis of assets and liabilities acquired and any contingencies associated with uncertain tax positions assumed or resulting from the business combination. Deferred tax assets and liabilities related to temporary differences of an acquired entity are recorded as of the date of the business combination and are based on our estimate of the ultimate tax basis that will be accepted by the various tax authorities. We record liabilities for contingencies associated with prior tax returns filed by the acquired entity based on criteria set forth in the appropriate accounting guidance. We adjust the deferred tax accounts and the liabilities periodically to reflect any revised estimated tax basis and any estimated settlements with the various tax authorities. The effects of these adjustments are recorded to income tax expense.

From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty. In these cases, we evaluate our tax position using the recognition threshold and the measurement attribute in accordance with the accounting guidance related to uncertain tax positions. Examples of these transactions include business acquisitions and dispositions, including consideration paid or received in connection with these transactions, certain financing transactions, and the allocation of income among state and local tax jurisdictions. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We determine whether it is more likely than not that a tax position will be sustained on examination, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in our consolidated financial statements. We classify interest and penalties, if any, associated with our uncertain tax positions as a component of income tax expense.

NBCUniversal

For U.S. federal income tax purposes, NBCUniversal Holdings is treated as a partnership and NBCUniversal is disregarded as an entity separate from NBCUniversal Holdings. Accordingly, neither NBCUniversal Holdings nor NBCUniversal and its subsidiaries incur any material current or deferred domestic income taxes.

We are indemnified by GE for any income tax liability attributable to the NBCUniversal contributed businesses for periods prior to the close of the NBCUniversal transaction in January 2011 and also for any income tax liability attributable to NBCUniversal Enterprise for periods prior to the date of the NBCUniversal redemption transaction in March 2013. We have indemnified GE for any income tax liability attributable to the businesses we contributed to NBCUniversal for periods prior to the close of the NBCUniversal transaction.

Current and deferred foreign income taxes are incurred by NBCUniversal’s foreign subsidiaries. In 2016, 2015 and 2014, NBCUniversal had foreign income before taxes of $871 million, $704 million and $385 million, respectively, on which foreign income tax expense was recorded. We recorded U.S. income tax expense on our allocable share of our subsidiaries’ income before domestic and foreign taxes, which was reduced by a U.S. tax credit equal to our allocable share of our subsidiaries’ foreign income tax expense.



Components of Net Deferred Tax Liability
December 31 (in millions)	2016		2015
Deferred Tax Assets:
Net operating loss carryforwards	$	544	$	551
Differences between book and tax basis of investments	—		101
Nondeductible accruals and other	3,789		3,704
Less: Valuation allowance	266		342
	4,067		4,014
Deferred Tax Liabilities:
Differences between book and tax basis of property and equipment and intangible assets	37,401		36,392
Differences between book and tax basis of investments	144		—
Differences between book and tax basis of indexed debt securities	375		457
Differences between book and tax basis of foreign subsidiaries and undistributed foreign earnings	960		731
	38,880		37,580
Net deferred tax liability	$	34,813	$	33,566

Changes in our net deferred tax liability in 2016 that were not recorded as deferred income tax expense are primarily related to an increase of $158 million associated with items included in other comprehensive income (loss), a decrease of $226 million related to acquisitions and a decrease of $129 million associated with our purchase of a noncontrolling interest. Our net deferred tax liability includes $23 billion related to cable franchise rights that will remain unchanged unless we recognize an impairment or dispose of a cable franchise or there is a change in the tax law.

As of December 31, 2016, we had federal net operating loss carryforwards of $598 million, including losses of DreamWorks Animation, and various state net operating loss carryforwards that expire in periods through 2036. As of December 31, 2016, we also had foreign net operating loss carryforwards of $431 million that are related to the foreign operations of NBCUniversal, the majority of which expire in periods through 2026. The determination of the realization of the state and foreign net operating loss carryforwards is dependent on our subsidiaries’ taxable income or loss, apportionment percentages, redetermination from taxing authorities, and state and foreign laws that can change from year to year and impact the amount of such carryforwards. We recognize a valuation allowance if we determine it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. As of December 31, 2016 and 2015, our valuation allowance was primarily related to state and foreign net operating loss carryforwards.

Uncertain Tax Positions

Our uncertain tax positions as of December 31, 2016 totaled $1.1 billion, which exclude the federal benefits on state tax positions that were recorded as deferred income taxes. Included in our uncertain tax positions was $181 million related to tax positions of NBCUniversal and NBCUniversal Enterprise for which we have been indemnified by GE. If we were to recognize the tax benefit for our uncertain tax positions in the future, $600 million would impact our effective tax rate and the remaining amount would increase our deferred income tax liability. The amount and timing of the recognition of any such tax benefit is dependent on the completion of examinations of our tax filings by the various tax authorities and the expiration of statutes of limitations. In 2014, we reduced our accruals for uncertain tax positions and the related accrued interest on these tax positions and, as a result, our income tax expense decreased by $759 million. It is reasonably possible that certain tax contests could be resolved within the next 12 months that may result in a decrease in our effective tax rate.



Reconciliation of Unrecognized Tax Benefits
(in millions)	2016			2015			2014
Balance, January 1	$	1,136		$	1,171		$	1,701
Additions based on tax positions related to the current year	74			67			63
Additions based on tax positions related to prior years	67			98			111
Additions from acquired subsidiaries	13			—			—
Reductions for tax positions of prior years	(62		)	(84		)	(220		)
Reductions due to expiration of statutes of limitations	(44		)	(41		)	(448		)
Settlements with tax authorities	(81		)	(75		)	(36		)
Balance, December 31	$	1,103		$	1,136		$	1,171

As of December 31, 2016 and 2015, our accrued interest associated with uncertain tax positions was $483 million and $510 million, respectively. As of December 31, 2016 and 2015, $39 million and $49 million, respectively, of these amounts were related to tax positions of NBCUniversal and NBCUniversal Enterprise for which we have been indemnified by GE.

During 2016, the IRS completed its examination of our income tax returns for the year 2014. Various states are examining our tax returns, with most of the periods relating to tax years 2000 and forward. The tax years of our state tax returns currently under examination vary by state.