Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

(11) Income Taxes

        In connection with our acquisition of Qwest on April 1, 2011, we recognized a net current deferred tax asset of $189 million, which relates primarily to certain accrued liabilities that are expected to result in future tax deductions. We also increased our net noncurrent deferred tax liability by $570 million, which reflects the expected future tax effects of certain differences between the financial reporting carrying amounts and tax bases of Qwest's assets and liabilities. The primary differences involve Qwest's pension and other postretirement benefit obligations, intangible assets, property, plant and equipment and long-term debt, including the effects of acquisition date valuation adjustments. The net deferred tax liability is partially offset by a deferred tax asset for expected future tax deductions relating to Qwest's net operating loss carryforwards. Based on our consideration of preliminary information, we recorded a valuation allowance of $210 million on the acquisition date for a portion of the acquired net deferred tax assets that we do not believe is more likely than not to be realized. Our preliminary acquisition date estimates of deferred income taxes and the related valuation allowance are subject to adjustment as discussed in Note 2—Acquisition of Qwest.

        Our effective income tax rate was 37.9% and 38.6% for the six months ended June 30, 2011 and 2010, respectively. For the three and six months ended June 30, 2011, our effective income tax rate exceeds the federal statutory rate of 35% primarily due to state income taxes and certain nondeductible acquisition expenses, partially offset by the reversal of a deferred tax asset valuation allowance that arose from a second quarter 2011 change in Wisconsin tax law.