Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.1.9
Income Taxes
 12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

There is no current U.S. federal income tax provision, as all federal taxable income was offset by utilizing U.S. federal net operating loss carryforwards. The current state income tax provision is primarily related to taxable income in certain states that have suspended the ability to use net operating loss carryforwards or where net operating losses have been fully utilized. The current foreign income tax provision is primarily related to foreign withholding taxes on dividend distributions between us and our Canadian affiliate. For the year ended December 31, 2013, the current foreign income tax provision related to reimbursement of foreign withholding taxes. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.

We file a consolidated federal income tax return with our wholly-owned subsidiaries. Income tax (expense) benefit consisted of the following:
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Current taxes:
 
 
 
 
 
Federal
$
—

 
$
—

 
$
—

State
(7,743
)
 
(5,359
)
 
(1,319
)
Foreign
(2,341
)
 
5,269

 
(2,265
)
Total current taxes
(10,084
)
 
(90
)
 
(3,584
)
Deferred taxes:
 
 
 
 
 
Federal
(302,350
)
 
(211,044
)
 
2,729,823

State
(25,111
)
 
(48,743
)
 
271,995

Total deferred taxes
(327,461
)
 
(259,787
)
 
3,001,818

Total income tax (expense) benefit
$
(337,545
)
 
$
(259,877
)
 
$
2,998,234


    
The following table indicates the significant elements contributing to the difference between the federal tax (expense) benefit at the statutory rate and at our effective rate:
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Federal tax expense, at statutory rate
$
(290,775
)
 
$
(222,982
)
 
$
(166,064
)
State income tax expense, net of federal benefit
(32,067
)
 
(19,031
)
 
(16,606
)
State income rate changes
5,334

 
(8,666
)
 
(2,251
)
Non-deductible expenses
(13,914
)
 
(9,545
)
 
(477
)
Change in valuation allowance
2,836

 
4,228

 
3,195,651

Other, net
(8,959
)
 
(3,881
)
 
(12,019
)
Income tax (expense) benefit
$
(337,545
)
 
$
(259,877
)
 
$
2,998,234



Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. In determining the period in which related tax benefits are realized for book purposes, excess share-based compensation deductions included in net operating losses are realized after regular net operating losses are exhausted; excess tax compensation benefits are recorded off balance-sheet as a memo entry until the period the excess tax benefit is realized through a reduction of taxes payable. A valuation allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
 
For the Years Ended December 31,
 
2014
 
2013
Deferred tax assets:
 
 
 
Net operating loss carryforwards
$
1,818,719

 
$
2,207,583

GM payments and liabilities
539

 
1,984

Deferred revenue
691,323

 
606,430

Severance accrual
271

 
388

Accrued bonus
28,170

 
25,830

Expensed costs capitalized for tax
19,624

 
22,679

Deferred financing costs
958

 
664

Investments
46,751

 
45,078

Stock based compensation
79,296

 
71,794

Other
36,597

 
31,735

Total deferred tax assets
2,722,248

 
3,014,165

Deferred tax liabilities:
 
 
 
Depreciation of property and equipment
(237,971
)
 
(188,675
)
FCC license
(789,857
)
 
(778,152
)
Other intangible assets
(213,086
)
 
(233,983
)
Total deferred tax liabilities
(1,240,914
)
 
(1,200,810
)
Net deferred tax assets before valuation allowance
1,481,334

 
1,813,355

Valuation allowance
(4,995
)
 
(7,831
)
Total net deferred tax asset
$
1,476,339

 
$
1,805,524


The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences can be carried forward under tax law. Management's evaluation of the realizability of deferred tax assets considers both positive and negative evidence, including historical financial performance, scheduled reversal of deferred tax assets and liabilities, projected taxable income and tax planning strategies in making this assessment. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified. The net deferred tax assets are primarily related to gross net operating loss carryforwards of approximately $4,794,924. In addition to the gross book net operating loss carryforwards, we have $753,218 of excess share-based compensation deductions that will not be realized until we utilize the $4,794,924 of net operating losses, resulting in an approximate gross operating loss carryforward on our tax return of $5,548,142.
For the year ended December 31, 2012, our deferred tax asset valuation allowance decreased by $3,350,905 in response to cumulative positive evidence in 2012 which outweighed the historical negative evidence from our emergence from cumulative losses in recent years and updated assessments regarding that it was more likely than not that our deferred tax assets will be realized. As of December 31, 2014 and 2013, the deferred tax asset valuation allowance of $4,995 and $7,831, respectively, related to deferred tax assets that are not likely to be realized due to certain state net operating loss limitations we are not more likely than not going to utilize. These net operating loss carryforwards expire on various dates beginning in 2017 and ending in 2028.

ASC 740 requires a company to first determine whether it is more likely than not that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to uncertain tax positions in Income tax (expense) benefit in our consolidated statements of comprehensive income.

As of December 31, 2014 and 2013, the gross liability for income taxes associated with uncertain state tax positions was $1,432. If recognized, $1,432 of unrecognized tax benefits would affect our effective tax rate. This liability is recorded in Other long-term liabilities. No penalties have been accrued for.  We do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2014 will significantly increase or decrease during the twelve-month period ending December 31, 2015; however, various events could cause our current expectations to change in the future. Should our position with respect to the majority of these uncertain tax positions be upheld, the effect would be recorded in our consolidated statements of comprehensive income as part of the income tax provision. Our policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax expense. We recorded interest expense of $55 and $40 for the years ended December 31, 2014 and 2013, respectively, related to our unrecognized tax benefits presented below.
Changes in our uncertain income tax positions, from January 1 through December 31 are presented below:
 
2014
 
2013
Balance, beginning of year
$
1,432

 
$
1,432

Additions for tax positions from prior years
—

 
—

Balance, end of year
$
1,432

 
$
1,432



We have federal and certain state income tax audits pending. We do not expect the ultimate disposition of these audits to have a material adverse effect on our financial position or results of operations.