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Income Taxes
9 Months Ended
Sep. 30, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
 
Prior to 2016, the Company had historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring items) for the reporting period. The Company determined that the historical method would not provide a reliable estimate for the nine month period ended September 30, 2016, as small fluctuations in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate. As a consequence, the Company used a discrete effective tax rate method to calculate taxes for the nine month period ended September 30, 2016.

All of EQGP’s income is included in the Company’s net income. However, the Company is not required to record income tax expense with respect to the portion of EQGP’s income allocated to the noncontrolling public limited partners of EQGP and EQM, which reduces the Company’s effective tax rate in periods when the Company has consolidated pretax income and increases the Company's effective tax rate in periods when the Company has consolidated pretax loss.
 
The Company’s effective income tax rate for the nine months ended September 30, 2016 was 87.2%, compared to 6.9% for the nine months ended September 30, 2015. The effective income tax rate for the nine months ended September 30, 2016 was higher than the U.S. federal statutory rate of 35% primarily driven by the effect of income allocated to the noncontrolling limited partners of EQGP and EQM. Due to the Company's consolidated pretax loss for the nine months ended September 30, 2016, primarily caused by lower realized commodity prices and losses on derivatives not designated as hedges at the EQT Production segment, EQGP's income allocated to the noncontrolling limited partners increased the effective income tax rate for the period. The increase in the effective income tax rate was also partly attributable to the tax benefit generated from a pre-tax loss on state income tax paying entities.

Excluding the impact of the Internal Revenue Service (IRS) guidance received by the Company (discussed below), the effective income tax rate for the nine months ended September 30, 2015 was 15.5%. The effective income tax rate differed from the U.S. federal statutory rate of 35% primarily as a result of income allocated to the noncontrolling limited partners of EQGP and EQM, a state income tax benefit as a result of lower pre-tax income on state tax paying entities and increased tax credits recorded in 2015. Noncontrolling limited partners income increased in 2015 primarily as a result of higher net income at EQM and increased noncontrolling interests as a result of sales of EQGP and EQM limited partner interests to the public.

The Company’s income tax expense was lower for the three and nine months ended September 30, 2015 due to a $35.5 million tax benefit recorded in connection with IRS guidance received by the Company in 2015 regarding the Company’s sale of Equitable Gas Company, LLC, a regulated entity, in 2013. The transaction included a partial like-kind exchange of assets that resulted in tax deferral for the Company. However, in order to be in compliance with the normalization rules of the Internal Revenue Code, the IRS guidance held that the deferred tax liability associated with the exchanged regulatory assets should not be considered for ratemaking purposes. As a result, during the second quarter of 2015, the Company recorded a regulatory asset equal to the taxes deferred from the exchange and an associated income tax benefit. The regulatory asset and deferred tax benefit will reverse during the fourth quarter of 2016 as a result of the disposal of certain regulated assets as part of the October 2016 Sale discussed in Note O.

There were no material changes to the Company’s methodology for determining unrecognized tax benefits during the three months ended September 30, 2016.  The Company believes that it is appropriately reserved for uncertain tax positions.