Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Tax Disclosure [Text Block]
Income Taxes

Income tax benefit (expense) consists of:
 
Years ended December 31,
 
2011
 
2010
 
2009
 
amounts in millions
Current:
 
 
 
 
 
Federal
$
(253
)
 
(211
)
 
204

State and local
(7
)
 
(8
)
 
13

Foreign
(1
)
 
(5
)
 
(2
)
 
(261
)
 
(224
)
 
215

Deferred:
 
 
 
 
 
Federal
(19
)
 
721

 
(65
)
State and local
(39
)
 
61

 
20

Foreign
—

 
—

 
—

 
(58
)
 
782

 
(45
)
Income tax benefit (expense)
$
(319
)
 
558

 
170


Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 35% as a result of the following:

 
Years ended December 31,
 
2011
 
2010
 
2009
 
amounts in millions
Computed expected tax benefit (expense)
$
(394
)
 
(160
)
 
(59
)
Disposition of consolidated subsidiaries
—

 
462

 
—

Settlements with taxing authorities
—

 
211

 
—

State and local income taxes, net of federal income taxes
(28
)
 
34

 
16

Change in valuation allowance affecting tax expense
(20
)
 
7

 
9

Recognition of tax benefits not previously recognized, net
109

 
—

 
201

Other, net
14

 
4

 
3

Income tax benefit (expense)
$
(319
)
 
558

 
170



The significant reconciling items as noted in the table are the result of settlements reached with the IRS regarding some of our tax positions taken on the Company's prior year tax returns. During the fourth quarter of 2011, the Company and the IRS agreed to certain tax treatments of several disputed items on the Company's 2010 tax return. Upon settlement, the Company recorded additional tax benefit through the statement of operations due to the reversal of certain tax reserves ($104 million) and settled net tax liabilities previously recorded for cash consideration of $136 million. During the fourth quarter of 2010, the Company recognized a net federal tax benefit of $211 million due to an agreement reached with the IRS with respect to settlement of certain derivative contracts reported on the Company's 2009 income tax return. During 2009, due to the completion of audits with taxing authorities, the Company reversed certain tax reserves and recorded a corresponding tax benefit of $201 million through the statement of operations.

Additionally, in fourth quarter of 2010, the Company recognized a deferred tax benefit of $462 million from the sale of certain consolidated subsidiaries. This position was settled as part of the agreement reached with the IRS during the fourth quarter of 2011.
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below:

 
December 31,
 
2011
 
2010
 
amounts in millions
Deferred tax assets:
 
 
 
Net operating and capital loss carryforwards
$
76

 
590

Accrued stock compensation
41

 
39

Other accrued liabilities
60

 
59

Discount on exchangeable debentures
—

 
48

Deferred revenue
18

 
409

Other future deductible amounts
31

 
26

Deferred tax assets
226

 
1,171

Valuation allowance
(30
)
 
(9
)
Net deferred tax assets
196

 
1,162

Deferred tax liabilities:
 
 
 
Investments
419

 
1,366

Intangible assets
100

 
106

Other
27

 
31

Deferred tax liabilities
546

 
1,503

Net deferred tax liabilities
$
350

 
341

The Company's deferred tax assets and liabilities are reported in the accompanying consolidated balance sheets as follows:

 
December 31,
 
2011
 
2010
 
amounts in millions
Current deferred tax liabilities (assets)
$
(61
)
 
712

Long-term deferred tax liabilities (assets)
411

 
(371
)
Net deferred tax liabilities
$
350

 
341

 The Company's net increase in the valuation allowance was $21 million in 2011. The gross change in valuation allowance that affected tax expense was $20 million.
 At December 31, 2011, the Company had federal net operating and capital loss carryforwards for income tax purposes aggregating approximately $118 million which, if not utilized to reduce taxable income in future periods, $1 million will expire in 2012, $68 million will expire in 2015 and $49 million will expire beyond 2016. The foregoing net operating and capital loss carryforwards are subject to certain limitations and may not be currently utilized.
During the year ended December 31, 2011 the Company utilized a significant portion of the gross deferred tax assets and liabilities. This was primarily the result of an agreement reached with the IRS during the fourth quarter of 2011, which resulted in a decrease to the Company's short term deferred income tax liability, related to the recognition of deferred derivative gains, and a decrease to the Company's long term deferred income tax asset, related to the use of capital losses. In addition, as a result of the Company recognizing significant deferred revenue and costs during 2011, the net deferred tax asset related to the deferred revenue decreased significantly.
 
        
A reconciliation of unrecognized tax benefits is as follows:

 
December 31,
 
2011
 
2010
 
amounts in millions
Balance at beginning of year
$
158

 
45

 
Additions based on tax positions related to the current year
—

 
118

 
Additions for tax positions of prior years
—

 
—

 
Reductions for tax positions of prior years
(6
)
 
(5
)
 
Lapse of statute and settlements
(118
)
 
—

Balance at end of year
$
34

 
158


        As of December 31, 2011, the Company had recorded tax reserves of $34 million related to unrecognized tax benefits for uncertain tax positions. If such tax benefits were to be recognized for financial statement purposes, $28 million would be reflected in the Company's tax expense and affect its effective tax rate. The Company's estimate of its unrecognized tax benefits related to uncertain tax positions requires a high degree of judgment.
        As of December 31, 2011, the Company's 2001 through 2007 tax years are closed for federal income tax purposes, and the IRS has completed its examination of the Company's 2008 through 2010 tax years. The Company's tax loss carryforwards from its 2008 through 2010 tax years are still subject to adjustment. The Company's 2011 tax year is being examined currently as part of the IRS's Compliance Assurance Process ("CAP") program. Various states are currently examining the Company's prior years state income tax returns. It is reasonably possible that the amount of the Company's gross unrecognized tax benefits may decrease within the next twelve months by up to $5 million.
        As of December 31, 2011, the Company had no accrued interest and penalties recorded related to uncertain tax positions.