Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 31, 2013
Income Taxes [Abstract]  
Income Tax Disclosure [Text Block]
Income Taxes

Income tax benefit (expense) consists of:
 
Years ended December 31,
 
2013
 
2012
 
2011
 
amounts in millions
Current:
 
 
 
 
 
Federal
$
(45
)
 
(7
)
 
(125
)
State and local
3

 
4

 
2

Foreign
5

 
(1
)
 
—

 
(37
)
 
(4
)
 
(123
)
Deferred:
 
 
 
 
 
Federal
165

 
(407
)
 
(4
)
State and local
7

 
(58
)
 
(38
)
Foreign
—

 
—

 
—

 
172

 
(465
)
 
(42
)
Income tax benefit (expense)
$
135

 
(469
)
 
(165
)

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,
 
2013
 
2012
 
2011
 
amounts in millions
Computed expected tax benefit (expense)
$
(3,100
)
 
(570
)
 
(265
)
Non-taxable gain on book consolidation of SIRIUS XM
3,054

 
—

 
—

Taxable liquidation of a consolidated subsidiary
—

 
101

 
—

Non-taxable exchange of subsidiary
174

 
—

 
—

Dividends received deductions
46

 
40

 
9

Sale of subsidiary shares to subsidiary treated as a dividend for tax
(56
)
 
—

 
—

State and local income taxes, net of federal income taxes
11

 
(46
)
 
(22
)
Change in valuation allowance affecting tax expense
9

 
1

 
(3
)
Recognition of tax benefits not previously recognized, net
—

 
5

 
109

Other, net
(3
)
 
—

 
7

Income tax benefit (expense)
$
135

 
(469
)
 
(165
)

For the year ended December 31, 2013 the significant reconciling items, as noted in the table above, are the result of a 7.5 billion non-taxable gain on the consolidation of SIRIUS XM on January 18, 2013, as discussed in note 4, and the non-taxable exchange of one of Liberty's consolidated subsidiaries on October 4, 2013, in exchange for Liberty shares (see note 13 for further discussion of this transaction).
For the year ended December 31, 2012 the significant reconciling items, as noted in the table above, are the result of a capital loss realized on the taxable liquidation of a consolidated subsidiary. The realized capital loss was approximately $289 million and as a result a $101 million federal tax benefit was recorded that offset federal tax expense from capital gains realized during the year ended December 31, 2012.
The significant reconciling items for the year ended December 31, 2011, as noted in the table above, are the result of settlements reached with the IRS regarding certain tax positions taken on the Company's prior year tax returns. During the fourth quarter of 2011, the Company and the IRS agreed to proposed 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.
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,
 
2013
 
2012
 
amounts in millions
Deferred tax assets:
 
 
 
Net operating and capital loss carryforwards
$
2,487

 
45

Accrued stock compensation
99

 
6

Other accrued liabilities
44

 
34

Discount on convertible debt
34

 
—

Deferred revenue
598

 
16

Other future deductible amounts
24

 
12

Deferred tax assets
3,286

 
113

Valuation allowance
(9
)
 
(6
)
Net deferred tax assets
3,277

 
107

Deferred tax liabilities:
 
 
 
Investments
457

 
820

Intangible assets
3,955

 
91

Other
261

 
—

Deferred tax liabilities
4,673

 
911

Net deferred tax liabilities
$
1,396

 
804

The Company's deferred tax assets and liabilities are reported in the accompanying consolidated balance sheets as follows:
 
December 31,
 
2013
 
2012
 
amounts in millions
Current deferred tax liabilities (assets)
$
(916
)
 
(13
)
Long-term deferred tax liabilities (assets)
2,312

 
817

Net deferred tax liabilities
$
1,396

 
804


SIRIUS XM's deferred tax assets and liabilities are included in the amounts above although SIRIUS XM's deferred tax assets and liabilities are not offset with Liberty's deferred tax assets and liabilities as SIRIUS XM is not included in the group tax return of Liberty. Liberty's acquisition of a controlling interest in SIRIUS XM's outstanding common stock during January 2013 did not create a change in control under Section 382 of the Internal Revenue Code.
 The Company's net increase in the valuation allowance was $3 million in 2013. Of the change in valuation allowance, $9 million was a decrease to tax expense and $12 million was an increase due to certain acquisitions made during the year ended December 31, 2013.
 At December 31, 2013, the Company had federal net operating loss carryforwards for income tax purposes which, if not utilized to reduce taxable income in future periods, will expire between 2017 and 2028, most of which expire between 2024 and 2027. The Company's federal net operating loss carryforwards are primarily attributable to those at the SIRIUS XM level ($6.5 billion). These net operating loss carryforwards are subject to certain limitations and may not be currently utilized.
A reconciliation of unrecognized tax benefits is as follows:
 
December 31,
 
2013
 
2012
 
amounts in millions
Balance at beginning of year
$
29

 
34

 
Reductions for tax positions of prior years
—

 
(5
)
 
Increase in tax positions from acquisition
1

 
—

Balance at end of year
$
30

 
29


        As of December 31, 2013, the Company had recorded tax reserves of $30 million related to unrecognized tax benefits for uncertain tax positions. If such tax benefits were to be recognized for financial statement purposes, $22 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, 2013, the Company's 2001 through 2009 tax years are closed for federal income tax purposes, and the IRS has completed its examination of the Company's 2010 through 2012 tax years. The Company's tax loss carryforwards from its 2010 through 2012 tax years are still subject to adjustment. The Company's 2013 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. The Company believes it is reasonably possible that the amount of the Company's gross unrecognized tax benefits will decrease by $28 million within the next twelve months. Sirius XM, which does not consolidate with Liberty for income tax purposes, has federal and certain state income tax audits pending.  We do not expect the ultimate disposition of these audits to have a material adverse affect on the our financial position or results of operations.
        As of December 31, 2013, the Company had no accrued interest and penalties recorded related to uncertain tax positions.