5. Income taxes:

While we are a not-for-profit membership corporation formed under the laws of Georgia, we are subject to federal and state income taxation. As a taxable cooperative, we are allowed to deduct patronage dividends that we allocate to our members for purposes of calculating our taxable income. We annually allocate income and deductions between patronage and non-patronage activities and substantially all of our income is from patronage-sourced activities, resulting in no current period income tax expense or current income tax liability.

Although we believe that treatment of non-member sales as patronage-sourced income is appropriate, this treatment has not been examined by the Internal Revenue Service. If this treatment was not sustained, we believe that the amount of taxes on such non-member sales, after allocating related expenses against the revenues from such sales, would not have a material adverse effect on financial condition or results of operations and cash flows.

We account for income taxes pursuant to the authoritative guidance for accounting for income taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

The difference between the statutory federal income tax rate on income before income taxes and our effective income tax rate is summarized as follows:



	2013		2012		2011

Statutory federal income tax rate	35.0	%	35.0	%	35.0%
Patronage exclusion	(33.3	%)	(32.7	%)	(32.6%)
Tax credits	0.0	%	0.0	%	0.0%
Other	(1.7	%)	(2.3	%)	(2.4%)

Effective income tax rate	0.0	%	0.0	%	0.0%

The components of the net deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows:



		(dollars in thousands)
		2013			2012

Deferred tax assets
Net operating losses	$	29,724		$	29,724
Tax credits (alternative minimum tax and other)		1,478			1,535
Accounting for Rocky Mountain transactions		348,136			347,867
Other assets		23,233			18,859

Deferred tax assets		402,571			397,985
Less: Valuation allowance		(31,202	)		(31,259	)

Net deferred tax assets	$	371,369		$	366,726

Deferred tax liabilities
Depreciation	$	448,350		$	465,598
Accounting for Rocky Mountain transactions		153,173			157,145
Other liabilities		60,354			44,508

Deferred tax liabilities		661,877			667,251

Net deferred tax liabilities		290,508			300,525
Less: Patronage exclusion		(290,508	)		(300,525	)

Net deferred taxes	$	–		$	–

As of December 31, 2013, we have federal tax net operating loss carryforwards and alternative minimum tax credits as follows:



		(dollars in thousands)

Expiration Date		Minimum Alternative Tax Credits		NOLs

2018	$	–	$	61,533
2019		–		10,516
2020		–		4,362
None		1,478		–

	$	1,478	$	76,411

The net operating loss expiration dates start in the year 2018 and end in the year 2020. Due to the tax basis method for allocating patronage and as shown by the above valuation allowance, it is not more likely than not that the deferred tax assets related to tax credits and net operating losses will be realized.

The authoritative guidance for income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

We file a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the year 2010 forward. State jurisdictions have statutes of limitations generally ranging from three to five years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by tax authorities in major state jurisdictions include 2010 forward. We have no liabilities recorded for uncertain tax positions.