(11) 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, 2014, 2013 and 2012:



	2014		2013		2012

Consolidated tax provision at federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax provisions, net of federal income
tax benefit	1.6		(2.7)		2.4
Noncontrolling interest	-		(0.6)		(2.5)
Tax reserve adjustment	6.9		(1.1)		(5.4)
Domestic production activities deduction	(8.7)		-		-
Changes in certain deferred tax balances	(14.1)		(4.0)		3.1
IRS audit adjustments	-		3.2		-
Federal research and development credit	(3.3)		(3.2)		-
Non-deductible transaction costs	1.0		2.0		-
All other, net	0.3		0.4		0.4
Effective tax rate	18.7	%	29.0	%	33.0	%

Income taxes for 2014 include the impact of a $23 million benefit from the reduction in deferred tax liabilities arising primarily from the inclusion of the Connecticut operations in the state unitary filings, a $14 million benefit from the domestic production activities deduction and a $5 million benefit from federal research and development credits, partially offset by the impact of a charge of $11 million resulting from an increase in tax reserves and a charge of $2 million resulting from non-deductible transaction costs.

Income taxes for 2013 reflect the impact of a $7 million net benefit resulting from the adjustment of deferred tax balances, a $5 million benefit from federal research and development credits and a $2 million benefit from the net reversal of reserves for uncertain tax positions, partially offset by the impact of a charge of $5 million resulting from the settlement of the 2010 IRS audit, and a charge of $3 million resulting from non-deductible transaction costs.

Income taxes for 2012 include the net reversal of reserves for uncertain tax positions for $12 million. Deferred tax balances were increased in 2012 to reflect changes in estimates and changes in state effective rates and filing methods.

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



($ in thousands)	2014		2013

Deferred income tax liabilities:
Property, plant and equipment basis differences	$	2,451,231	$	1,950,720
Intangibles		1,076,456		885,661
Other, net		23,926		25,954
	$	3,551,613	$	2,862,335

Deferred income tax assets:
Pension liability		247,490		216,890
Tax operating loss carryforward		162,085		130,733
Employee benefits		304,044		161,493
State tax liability		(642)		(642)
Accrued expenses		54,813		26,223
Allowance for doubtful accounts		16,078		11,957
Other, net		40,016		42,915
		823,884		589,569
Less: Valuation allowance		(139,937)		(112,671)
Net deferred income tax asset		683,947		476,898
Net deferred income tax liability	$	2,867,666	$	2,385,437

Deferred tax assets and liabilities are reflected in the following
captions on the consolidated balance sheet:
Deferred income taxes	$	2,938,907	$	2,417,108
Income taxes and other current assets		(71,241)		(31,671)
Net deferred income tax liability	$	2,867,666	$	2,385,437

Our state tax operating loss carryforward as of December 31, 2014 is estimated at $3 billion. A portion of our state loss carryforward will continue to expire annually through 2034, unless otherwise used.

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




($ in thousands)	2014		2013		2012

Income tax expense:
Current:
Federal	$	98,288	$	54,915	$	(3,824)
State		10,132		(163)		(1,039)
Total Current		108,420		54,752		(4,863)

Deferred:
Federal		(34,205)		12,699		53,642
State		(43,671)		(20,209)		26,859
Total Deferred		(77,876)		(7,510)		80,501
Total income tax expense		30,544		47,242		75,638

Income taxes charged (credited) to equity of Frontier:
Utilization of the benefits arising from restricted stock		(472)		1,910		2,937
Deferred income taxes (benefits) arising from the recognition
of additional pension/OPEB liability		(90,410)		132,432		(58,551)

Total income taxes charged (credited) to equity of Frontier		(90,882)		134,342		(55,614)
Total income taxes	$	(60,338)	$	181,584	$	20,024

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 $20 million as of December 31, 2014 including interest of $1 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 $3 million as of December 31, 2014.

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 are subject to income tax examinations generally for the years 2012 forward for federal and 2008 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, 2014 and 2013:



($ in thousands)	2014		2013

Unrecognized tax benefits - beginning of year	$	8,759	$	11,487
Gross increases - current year tax positions		12,878		4,554
Gross decreases - expired statute of limitations		(2,379)		(7,282)
Unrecognized tax benefits - end of year	$	19,258	$	8,759

The amounts above exclude $1 million of accrued interest as of December 31, 2014 and 2013, respectively, that we have recorded and would be payable should the Company’s tax positions not be sustained.