Income Taxes

Income Tax Benefit

The table below shows our consolidated income tax benefit from continuing operations (excluding noncontrolling interest) and our effective tax rates for the periods indicated (in millions):



	Three Months Ended March 31,
	2013			2012
Income tax benefit	$	(50	)	$	(6	)
Effective tax rate	29		%	40		%

Income Tax Audits — We remain subject to periodic audits and reviews by taxing authorities; however, we do not expect these will have a material effect on our tax provision. Any NOLs we claim in future years to reduce taxable income could be subject to IRS examination regardless of when the NOLs occurred. Due to significant NOLs, any adjustment of state returns or federal returns would likely result in a reduction of deferred tax assets rather than a cash payment of income taxes.

Canadian Tax Audits — In January 2013, we received an adjusted reassessment on one of two transfer pricing issues that we are disputing with the Canadian Revenue Authority (“CRA”) and are currently evaluating the merits of the adjusted reassessment. If accepted, any adjustments to our transfer pricing would increase taxable income and would be offset entirely by existing NOL’s to which a valuation allowance has been applied. Any interest assessments resulting from acceptance of the CRA offer would be immaterial.

We continue to evaluate the remaining proposed adjustments received on our other Canadian subsidiary; however, based on our current analysis which is supported by our tax advisors, we believe that our transfer pricing positions and policies are appropriate, and we intend to challenge the CRA’s proposed adjustments. If we are unsuccessful in our challenge, any adjustment to Canadian taxable income would first be offset against the existing NOLs that are available; however, we do not believe any reassessment resulting in an adjustment to taxable income which is greater than our existing NOLs, or including interest or penalties which cannot be offset by existing NOLs, would have a material adverse effect on our financial condition, results of operations or cash flows.

Valuation Allowance — U.S. GAAP requires that we consider all available evidence, both positive and negative, and tax planning strategies to determine whether, based on the weight of that evidence, a valuation allowance is needed to reduce the value of deferred tax assets. Future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback or carryforward periods available under the tax law. Due to our history of losses, we were unable to assume future profits; however, since our emergence from Chapter 11, we are able to consider available tax planning strategies.

Unrecognized Tax Benefits — At March 31, 2013, we had unrecognized tax benefits of $79 million. If recognized, $24 million of our unrecognized tax benefits could impact the annual effective tax rate and $55 million, related to deferred tax assets, could be offset against the recorded valuation allowance resulting in no impact to our effective tax rate. We also had accrued interest and penalties of $14 million for income tax matters at March 31, 2013. We recognize interest and penalties related to unrecognized tax benefits in income tax benefit on our Consolidated Condensed Statements of Operations. We believe it is reasonably possible that a decrease within the range of approximately nil and $5 million in unrecognized tax benefits could occur within the next 12 months primarily related to state and foreign tax issues.