Note 8 — Income Taxes

Effective Tax Rates

The following tables summarize the effective income tax rates for Cleco and Cleco Power for the three months ended March 31, 2018, and 2017:



Cleco
	FOR THE THREE MONTHS ENDED MAR. 31,
	2018		2017
Effective tax rate	20.9	%	33.1	%



Cleco Power
	FOR THE THREE MONTHS ENDED MAR. 31,
	2018		2017
Effective tax rate	23.5	%	35.6	%

For the three months ended March 31, 2018, and 2017, the effective income tax rates for both Cleco and Cleco Power were different than the federal statutory rate primarily due to permanent tax differences, the flowthrough of state tax benefits, including AFUDC equity, and state tax expense.

Uncertain Tax Positions

Cleco classifies all interest related to uncertain tax positions as a component of interest payable and interest expense. At March 31, 2018, and December 31, 2017, Cleco and Cleco Power had no interest payable related to uncertain tax positions. For the three months ended March 31, 2018, and 2017, Cleco and Cleco Power had no interest expense related to uncertain tax positions.

At March 31, 2018, Cleco had no liability for uncertain tax positions. Cleco estimates that it is reasonably possible that the balance of unrecognized tax benefits as of March 31, 2018, for Cleco and Cleco Power would be unchanged in the next 12 months. The settlement of open tax years could involve the payment of additional taxes, and/or the recognition of tax benefits, which may have an effect on Cleco’s effective tax rate.

The federal income tax years that remain subject to examination by the IRS are 2014, 2015, and 2016.

Beginning with the 2013 tax year, Cleco entered into the IRS’s Compliance Assurance Process which allows taxpayers to work collaboratively with an IRS team to identify and resolve potential tax issues before the federal tax return is filed each year. Cleco must apply for admission to the program each year. Cleco has been approved for the Compliance Assurance Process through the 2018 tax year.

The state income tax years that remain subject to examination by the Louisiana Department of Revenue are 2014, 2015, and 2016.

Cleco classifies income tax penalties as a component of other expense. For the three months ended March 31, 2018, and 2017, no penalties were recognized.

2017 Tax Reform

On December 22, 2017, the President signed into law the TCJA. The TCJA includes significant changes to the Internal Revenue Code, as amended, including amendments which significantly change the taxation of business entities and includes specific provisions related to rate regulated activities, including Cleco Power. The most significant change that impacts Cleco is the reduction in the corporate federal income tax rate from 35% to 21%.

The SEC Staff has recognized the complexity of reflecting the impacts of the TCJA and issued guidance which clarifies accounting for income taxes if information is not yet available or complete and provides up to one year to complete the required analysis and accounting (the measurement period).

The Registrants have made a reasonable estimate for the measurement and accounting of certain effects of the TCJA, which were reflected in the December 31, 2017, financial statements. The accounting for these provisional items decreased deferred income tax expense for Cleco and Cleco Power by $46.3 million and $14.3 million, respectively, for the year ended December 31, 2017. The TCJA also resulted in a decrease in the accumulated deferred income tax liability for Cleco and Cleco Power by $394.9 million and $362.9 million, respectively, at December 31, 2017. For the three months ended March 31, 2018, there were no adjustments in the accumulated deferred income tax liability related to the TCJA for Cleco or Cleco Power.

The impacts of the TCJA discussed above, including the effects on income tax expense, regulatory liabilities, and effects on future periods, are provisional and subject to change. The accounting is not complete due to the timing of the final passage of the TCJA, the complexity of the TCJA, the complexity of remeasuring ADIT, and the uncertainty of regulatory treatment. Additional analysis of the TCJA, the inventory of items that give rise to temporary differences, and additional analysis of items requiring normalization is required before accounting for the TCJA is considered complete under the authoritative guidance for income taxes. Cleco expects any final adjustments to the provisional amounts to be recorded by the fourth quarter of 2018, which could have a material adverse effect on the results of operations of Cleco.