Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes

4. Income Taxes

The company's U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The Internal Revenue Service (IRS) concluded its examination of the company's 2009 consolidated federal income tax return during 2010. The U.S. federal statute of limitations remains open for the year 2008 and onward. Years 2010 and 2011 are currently being examined by the IRS under its Compliance Assurance Program. TECO Energy does not expect the settlement of current IRS examinations to significantly change the total amount of unrecognized tax benefits by the end of 2011. Foreign and U.S. 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 and foreign jurisdictions include 2007 and forward.

During the second quarter of 2010, the company finalized the settlements of certain state items that were under appeal. As a result, the company recorded a $1.6 million after-tax benefit, excluding interest. During the nine months ended Sep. 30, 2010, the company recorded a total of $4.0 million after-tax benefit, excluding interest, for these state items.

The company recognizes interest and penalties associated with uncertain tax positions in "Operation other expense-Other" on the Consolidated Condensed Statements of Income in accordance with standards for accounting for uncertainty in income taxes. For the nine months ended Sep. 30, 2011 and Sep. 30, 2010, the company recorded $0.2 million of interest charges and a net $1.2 million of interest income, respectively. No amounts were recorded for penalties for the nine month periods ended Sep. 30, 2011 or 2010.

The effective tax rate decreased to 36.18% for the three month period ended Sep. 30, 2011 from 56.17% for the same period in 2010. The three month period ended Sep. 30, 2010 included $24.9 million of U.S. deferred taxes recognized on DECA II undistributed earnings which were no longer considered indefinitely reinvested. The effective tax rate decreased to 36.02% for the nine months ended Sep. 30, 2011 from 42.63% for the same period in 2010. The nine month period ended Sep. 30, 2010 also included the $24.9 million mentioned above and a $5.9 million foreign tax credit valuation allowance.

Tampa Electric Co [Member]

Income Taxes

4. Income Taxes

Tampa Electric Company is included in the filing of a consolidated federal income tax return with TECO Energy and its affiliates. Tampa Electric Company's income tax expense is based upon a separate return computation. Tampa Electric Company's effective tax rates for the nine months ended Sep. 30, 2011 and Sep. 30, 2010 differ from the statutory rate principally due to state income taxes, domestic activity production deduction and the equity portion of Allowance for Funds Used During Construction.

The IRS concluded its examination of TECO Energy's consolidated federal income tax return for the year 2009 during 2010. The U.S. federal statute of limitations remains open for the year 2008 and onward. Years 2010 and 2011 are currently under examination by the IRS under its Compliance Assurance Program. TECO Energy does not expect the settlement of current IRS examinations to significantly change the total amount of unrecognized tax benefits by the end of 2011. Florida's statute of limitations is three 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 Florida's tax authorities include 2008 and onward.