(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, 2015, 2014 and 2013:



	2015		2014		2013

Consolidated tax provision at federal statutory rate	35.0	%	35.0	%	35.0	%
State income tax provisions, net of federal income
tax benefit	8.7		1.6		(2.7)
Noncontrolling interest	-		-		(0.6)
Tax reserve adjustment	(0.3)		6.9		(1.1)
Domestic production activities deduction	-		(8.7)		-
Changes in certain deferred tax balances	0.8		(14.1)		(4.0)
IRS audit adjustments	-		-		3.2
Federal research and development credit	1.5		(3.3)		(3.2)
Non-deductible transaction costs	0.4		1.0		2.0
All other, net	(0.3)		0.3		0.4
Effective tax rate	45.8	%	18.7	%	29.0	%

Income taxes for 2015 include the impact of a $3 million benefit arising from the adjustment of deferred tax balances and a $5 million benefit from the federal research and development credit.

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.

As a result of the retrospective implementation of Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, Frontier offset all deferred tax liabilities and assets, as well as any related valuation allowance, and is presenting them as a single non-current amount within Deferred income taxes in the consolidated balance sheet as of December 31, 2015 and 2014.

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



($ in millions)	2015		2014

Deferred income tax liabilities:
Property, plant and equipment basis differences	$	2,401	$	2,451
Intangibles		960		1,076
Other, net		15		24
	$	3,376	$	3,551

Deferred income tax assets:
Pension liability		222		247
Tax operating loss carryforward		295		162
Employee benefits		262		304
Accrued expenses		50		55
Allowance for doubtful accounts		10		16
Other, net		48		39
		887		823
Less: Valuation allowance		(177)		(140)
Net deferred income tax asset		710		683
Net deferred income tax liability	$	2,666	$	2,868

Our federal net operating loss carryforward as of December 31, 2015 is estimated at $244 million. The federal loss carryforward will expire in 2035.

Our state tax operating loss carryforward as of December 31, 2015 is estimated at $4.1 billion. A portion of our state loss carryforward will continue to expire annually through 2035, 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 millions)	2015		2014		2013

Income tax expense (benefit):
Current:
Federal	$	8	$	98	$	55
State		(6)		10		-
Total Current		2		108		55

Deferred:
Federal		(126)		(34)		13
State		(41)		(44)		(20)
Total Deferred		(167)		(78)		(7)
Total income tax expense (benefit)		(165)		30		48

Income taxes charged (credited) to equity of Frontier:
Utilization of the benefits arising from restricted stock		-		-		2
Deferred income taxes (benefits) arising from the recognition
of additional pension/OPEB liability		36		(90)		132

Total income taxes charged (credited) to equity of Frontier		36		(90)		134
Total income taxes	$	(129)	$	(60)	$	182

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 Frontier’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, 2015 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 $1 million as of December 31, 2015.

Frontier’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 Frontier’s balance of unrecognized tax benefits for the years ended December 31, 2015 and 2014:



($ in millions)	2015		2014

Unrecognized tax benefits - beginning of year	$	19	$	9
Gross increases - current year tax positions		2		13
Gross decreases - expired statute of limitations		(2)		(3)
Unrecognized tax benefits - end of year	$	19	$	19

The amounts above exclude $1 million of accrued interest as of December 31, 2015 and 2014, respectively, that we have recorded and would be payable should Frontier’s tax positions not be sustained.