(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, 2013, 2012 and 2011:



	2013		2012		2011

Consolidated tax provision at federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax provisions, net of federal income
tax benefit	(2.7)		2.4		4.0
Noncontrolling interest	(0.6)		(2.5)		(1.1)
Tax reserve adjustment	(1.1)		(5.4)		(4.0)
Changes in certain deferred tax balances	(4.0)		3.1		(2.7)
IRS audit adjustments	3.2		-		-
Federal research and development credit	(3.2)		-		-
Reversal of tax credits	-		-		4.4
Non-deductible transaction costs	2.0		-		-
All other, net	0.4		0.4		0.3
Effective tax rate	29.0	%	33.0	%	35.9	%

Income taxes for 2013 include the impact of a $6.5 million net benefit resulting from the adjustment of deferred tax balances, a $5.2 million benefit from federal research and development credits and a $1.8 million benefit from the net reversal of reserves for uncertain tax positions, partially offset by the impact of a charge of $5.2 million resulting from the settlement of the 2010 IRS audit, and a charge of $3.3 million resulting from non-deductible transaction costs.

Income taxes for 2012 and 2011 include the net reversal of reserves for uncertain tax positions for $12.3 million and $9.9 million, respectively. Deferred tax balances were increased in 2012 to reflect changes in estimates and changes in state effective rates and filing methods.

Income taxes for 2011 include 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.

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



($ in thousands)	2013		2012

Deferred income tax liabilities:
Property, plant and equipment basis differences	$	1,950,720	$	1,959,028
Intangibles		885,661		929,749
Other, net		25,954		29,564
	$	2,862,335	$	2,918,341

Deferred income tax assets:
Pension liability		216,890		306,421
Tax operating loss carryforward		130,733		154,892
Employee benefits		161,493		177,464
State tax liability		(642)		7,422
Accrued expenses		26,223		43,162
Allowance for doubtful accounts		11,957		35,181
Other, net		42,915		14,025
		589,569		738,567
Less: Valuation allowance		(112,671)		(78,784)
Net deferred income tax asset		476,898		659,783
Net deferred income tax liability	$	2,385,437	$	2,258,558

Deferred tax assets and liabilities are reflected in the following
captions on the consolidated balance sheet:
Deferred income taxes	$	2,417,108	$	2,357,210
Income taxes and other current assets		(31,671)		(98,652)
Net deferred income tax liability	$	2,385,437	$	2,258,558

Our state tax operating loss carryforward as of December 31, 2013 is estimated at $2.5 billion. A portion of our state loss carryforward begins to expire in 2014 through 2032.

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)	2013		2012		2011

Income taxes charged to the consolidated statement of operations:
Current:
Federal	$	54,915	$	(3,824)	$	(13,320)
State		(163)		(1,039)		14,252
Total Current		54,752		(4,863)		932

Deferred:
Federal		12,699		53,642		77,750
State		(20,209)		26,859		9,661
Total Deferred		(7,510)		80,501		87,411
Total income taxes charged to the consolidated statement of operations		47,242		75,638		88,343

Income taxes charged (credited) to shareholders' equity of Frontier:
Utilization of the benefits arising from restricted stock		1,910		2,937		-
Deferred income taxes (benefits) arising from the recognition
of additional pension/OPEB liability		132,432		(58,551)		(97,409)
Total income taxes charged (credited) to shareholders' equity
of Frontier		134,342		(55,614)		(97,409)
Total income taxes	$	181,584	$	20,024	$	(9,066)

In 2011, we received refunds of $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 $9.3 million as of December 31, 2013 including interest of $0.6 million. The amount of our uncertain tax positions for which the statutes of limitations are expected to expire during the next twelve months and which would affect our effective tax rate is $2.4 million as of December 31, 2013.

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 2012 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, 2013 and 2012:



($ in thousands)	2013		2012

Unrecognized tax benefits - beginning of year	$	11,487	$	33,928
Gross increases - current year tax positions		4,554		3,381
Gross decreases - expired statute of limitations		(7,282)		(25,822)
Unrecognized tax benefits - end of year	$	8,759	$	11,487

The amounts above exclude $0.6 million and $2.1 million of accrued interest as of December 31, 2013 and 2012, respectively, that we have recorded and would be payable should the Company’s tax positions not be sustained.