Note 7 to the consolidated financial statements included in NSP-Wisconsin’s Annual Report on Form 10-K for the year ended Dec. 31, 2019 represents, in all material respects, the current status of other income tax matters except to the extent noted below, and are incorporated herein by reference.


	Nine Months Ended Sept. 30
	2020		2019
Federal statutory rate	21.0	%	21.0	%
State tax (net of federal tax effect)	6.2		6.2
Increases (decreases) in tax from:
Plant regulatory differences (a)	(19.6)		(0.4)
Nonplant ADIT amortization	(12.8)		—
Tax credits, net of NOL & tax credit allowances	(1.6)		(1.5)
Prior period adjustments	0.5		0.4
Other (net)	(0.6)		0.7
Effective income tax rate	(6.9)	%	26.4	%

(a) Regulatory differences for income tax primarily relates to the credit of excess deferred taxes to customers through the average rate assumption method. Income tax benefits associated with the credit of excess deferred credits are offset by corresponding revenue reductions.

Federal Audits — NSP-Wisconsin is a member of the Xcel Energy affiliated group that files a consolidated federal income tax return. Statute of limitations applicable to Xcel Energy’s consolidated federal income tax returns expire as follows:

In 2017, the IRS concluded the audit of tax years 2012 and 2013 and proposed an adjustment that would impact Xcel Energy’s NOL and ETR. Xcel Energy filed a protest with the IRS. In April 2020, Xcel Energy and Office of Appeals reached an agreement and no material adjustments were required.

In 2018, the IRS began an audit of tax years 2014 - 2016. In July 2020, Xcel Energy and the IRS reached an agreement and the related benefit was recognized.

State Audits — NSP-Wisconsin is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Sept. 30, 2020, NSP-Wisconsin’s earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2014. In 2018, Wisconsin began an audit of tax years 2014 - 2016. As of Sept. 30, 2020, no material adjustments have been proposed.

Unrecognized Benefits — The unrecognized tax benefit balance includes permanent tax positions, which if recognized would affect the annual ETR. In addition, the unrecognized tax benefit balance includes temporary tax positions for which ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. A change in the period of deductibility would not affect the ETR but would accelerate the payment to the taxing authority to an earlier period.


(Millions of Dollars)	Sept. 30, 2020		Dec. 31, 2019
Unrecognized tax benefit — Permanent tax positions	$	1.6	$	2.6
Unrecognized tax benefit — Temporary tax positions	—		0.8
Total unrecognized tax benefit	$	1.6	$	3.4

Unrecognized tax benefits were reduced by tax benefits associated with NOL and tax credit carryforwards:


(Millions of Dollars)	Sept. 30, 2020		Dec. 31, 2019
NOL and tax credit carryforwards	$	(1.2)	$	(2.2)

Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credit carryforwards were $1.2 million at Sept. 30, 2020 and Dec. 31, 2019, respectively.

As the IRS audits resume and state audits progress, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $0.6 million in the next 12 months.

Payables for interest related to unrecognized tax benefits were not material and no amounts were accrued for penalties related to unrecognized tax benefits as of Sept. 30, 2020 and Dec. 31, 2019, respectively.