(12) Income Taxes:

The following is a reconciliation of the provision for income taxes computed at federal statutory rates to the effective rates for the years ended December 31, 2011, 2010 and 2009:

	2011	2010	2009
Consolidated tax provision at federal statutory rate	35.0%	35.0%	35.0%
State income tax provisions, net of federal income tax benefit	2.8	3.2	2.8
Reversal of tax credits	4.4	-	-
Non-deductible transaction costs	-	4.2	-
Tax reserve adjustment	(5.5)	0.4	-
All other, net	(0.8)	(0.3)	(1.6)
Effective tax rate	35.9 %	42.5 %	36.2 %

Income taxes for 2011 include the net reversal of a reserve for uncertain tax positions for $8.6 million and the reduction of deferred tax balances based on the application of enacted state tax statutes for $6.8 million, partially offset by the impact of a $10.8 million charge resulting from the enactment on May 25, 2011 of the Michigan Corporate Income Tax that eliminated certain future tax deductions.

During 2010, Frontier reduced certain deferred tax assets of approximately $11.3 million related to Transaction costs which were not tax deductible. These costs were incurred to facilitate the Transaction and as such had to be capitalized for tax purposes. Income taxes for 2010 also include the impact of a $4.1 million charge resulting from health care reform legislation associated with the passage of the Patient Protection and Affordable Care Act and of the Health Care and Education Reconciliation Act of 2010 (the Acts). The health care reform legislation enacted in March 2010 under the Acts eliminated the tax deduction for the subsidy that the Company receives under Medicare Part D for prescription drug costs.

The components of the net deferred income tax liability (asset) at December 31 are as follows:

($ in thousands)				2011	2010

Deferred income tax liabilities:
	Property, plant and equipment basis differences			$ 1,896,666	$ 1,448,061
	Intangibles			997,455	1,145,760
	Other, net			17,584	10,170
				2,911,705	2,603,991

Deferred income tax assets:
	Pension liability			246,714	176,579
	Tax operating loss carryforward			294,171	148,338
	Employee benefits			154,711	189,558
	State tax liability			7,358	13,241
	Accrued expenses			27,645	75,407
	Allowance for doubtful accounts			42,733	37,511
	Other, net			22,313	4,238
				795,645	644,872
		Less: Valuation allowance		(108,662)	(115,585)
	Net deferred income tax asset			686,983	529,287
		Net deferred income tax liability		$ 2,224,722	$ 2,074,704


Deferred tax assets and liabilities are reflected in the following
	captions on the consolidated balance sheet:
		Deferred income taxes		$ 2,458,018	$ 2,220,677
		Income taxes and other current assets		(233,296)	(145,973)
			Net deferred income tax liability	$ 2,224,722	$ 2,074,704

Our federal net operating loss carryforward as of December 31, 2011 is estimated as $503 million and our state tax operating loss carryforward as of December 31, 2011 is estimated at $1.9 billion. A portion of our state loss carryforward begins to expire in 2012.

The provision (benefit) for Federal and state income taxes, as well as the taxes charged or credited to shareholders' equity of Frontier, includes amounts both payable currently and deferred for payment in future periods as indicated below:

($ in thousands)			2011	2010	2009

Income taxes charged to the consolidated statement of
	operations:
Current:
	Federal		$ (13,320)	$ 18,302	$ 11,618
	State		14,252	10,260	(2,630)
		Total current	932	28,562	8,988

Deferred:
	Federal		77,750	82,080	49,916
	State		9,661	4,357	11,024
		Total deferred	87,411	86,437	60,940
Total income taxes charged to the consolidated statement of			88,343	114,999	69,928
		operations

Income taxes charged (credited) to shareholders' equity of Frontier:
Current benefit arising from stock options exercised and restricted stock			-	-	881
Deferred income taxes (benefits) arising from the recognition of
	additional pension/OPEB liability		(97,409)	17,501	(4,353)
Total income taxes charged (credited) to shareholders' equity of Frontier			(97,409)	17,501	(3,472)
Total income taxes			$ (9,066)	$ 132,500	$ 66,456

In 2011, we received refunds of approximately $53.9 million generated in part by the 2009 retroactive change in accounting method for repairs and maintenance costs related to tax years 2008 and prior.

U.S. GAAP requires applying a “more likely than not” threshold to the recognition and derecognition of uncertain tax positions either taken or expected to be taken in the Company's income tax returns. The total amount of our gross tax liability for tax positions that may not be sustained under a “more likely than not” threshold amounts to $37.5 million as of December 31, 2011 including interest of $3.6 million. The amount of our uncertain tax positions whose statute of limitations are expected to expire during the next twelve months and which would affect our effective tax rate is $8.4 million as of December 31, 2011.

The Company's policy regarding the classification of interest and penalties is to include these amounts as a component of income tax expense. This treatment of interest and penalties is consistent with prior periods. We have recognized in our consolidated statement of operations for the year ended December 31, 2011, a net reduction in interest in the amount of $2.1 million. We are subject to income tax examinations generally for the years 2008 forward for Federal and 2005 forward for state filing jurisdictions. We also maintain uncertain tax positions in various state jurisdictions.

The following table sets forth the changes in the Company's balance of unrecognized tax benefits for the years ended December 31, 2011 and 2010:

	($ in thousands)
		2011	2010
Unrecognized tax benefits - beginning of year		$ 49,180	$ 56,860
Gross decreases - prior year tax positions		-	(5,442)
Gross increases - current year tax positions		8,200	1,216
Gross decreases - expired statute of limitations		(23,452)	(3,454)
Unrecognized tax benefits - end of year		$ 33,928	$ 49,180

The amounts above exclude $3.6 million and $5.7 million of accrued interest as of December 31, 2011 and 2010, respectively, that we have recorded and would be payable should the Company's tax positions not be sustained.