Note 7 to the consolidated financial statements included in PSCo’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)	3.7		3.7
(Decreases) increases in tax from:
Wind PTCs	(8.5)		(7.7)
Plant regulatory differences (a)	(4.6)		(3.6)
Other tax credits, net NOL & tax credit allowances	(1.1)		(1.3)
Other (net)	(0.8)		(0.6)
Effective income tax rate	9.7	%	11.5	%

(a) Regulatory differences for income tax primarily relate 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 Tax Loss Carryback Claims — In 2020, Xcel Energy identified certain expenses related to tax years 2009-2011 that qualify for an extended carryback claim. PSCo is not expected to accrue any income tax expense related to this adjustment.

Federal Audits — PSCo 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 federal income tax returns expire as follows:

Additionally, the statute of limitations related to the federal tax loss carryback claim referenced above has been extended. Xcel Energy has recognized its best estimate of income tax expense that will result from a final resolution of this issue; however, the outcome and timing of a resolution is unknown.

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 — PSCo is a member of the Xcel Energy affiliated group that files consolidated state income tax returns. As of Sept. 30, 2020, PSCo’s earliest open tax year subject to examination by state taxing authorities under applicable statutes of limitations is 2009. As of Sept. 30, 2020, there are no state income tax audits in progress.

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	$	7.1	$	7.4
Unrecognized tax benefit — Temporary tax positions	1.3		4.6
Total unrecognized tax benefit	$	8.4	$	12.0

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	$	(7.0)	$	(8.3)

Net deferred tax liability associated with the unrecognized tax benefit amounts and related NOLs and tax credit carryforwards were $5.7 million and $5.0 million for Sept. 30, 2020 and Dec. 31, 2019, respectively.

As the IRS and state audits resume, it is reasonably possible that the amount of unrecognized tax benefit could decrease up to approximately $2.8 million in the next 12 months.

Payable for interest related to unrecognized tax benefits is partially offset by the interest benefit associated with NOL and tax credit carryforwards.


(Millions of Dollars)	Sept. 30, 2020		Dec. 31, 2019
Payable for interest related to unrecognized tax benefits at beginning of period	$	(1.1)	$	(0.7)
Interest benefit (expense) related to unrecognized tax benefits	1.1		(0.4)
Payable for interest related to unrecognized tax benefits at end of period	$	—	$	(1.1)

No amounts were accrued for penalties related to unrecognized tax benefits as of Sept. 30, 2020 and Dec. 31, 2019.