Income Taxes and Accounting for Uncertainty in Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes and Accounting for Uncertainty in Income Taxes

Income Taxes and Accounting for Uncertainty in Income Taxes

10.    Income Taxes and Accounting for Uncertainty in Income Taxes

Income Taxes

Our income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported on our Consolidated Balance Sheets, as well as probable operating loss, tax credit and other carryforwards. Deferred tax assets are offset by valuation allowances when we believe it is more likely than not that net deferred tax assets will not be realized. We periodically evaluate our need for a valuation allowance. Determining necessary valuation allowances requires us to make assessments about historical financial information as well as the timing of future events, including the probability of expected future taxable income and available tax planning opportunities.

We file consolidated tax returns in the United States. The income taxes of domestic and foreign subsidiaries not included in the United States tax group are presented in our consolidated financial statements on a separate return basis for each tax paying entity.

As of December 31, 2023, we had $267 million net operating loss carryforwards (“NOLs”) for federal income tax purposes and $286 million of NOL carryforwards for state income tax purposes, which are partially offset by a valuation allowance. In addition, there are $83 million of tax benefits related to credit carryforwards which are partially offset by a valuation allowance. Portions of the state NOL and credit carryforwards expired in 2023.

The components of the (benefit from) provision for income taxes were as follows:

	For the Years Ended December 31,
	2023		2022		2021
	(In thousands)
Current (benefit) provision:
Federal	$	(29,307)	$	(23,571)	$	126,435
State		29,254		59,690		31,944
Foreign		3,301		(7,118)		2,387
Total current (benefit) provision		3,248		29,001		160,766
Deferred (benefit) provision:
Federal		(293,666)		615,323		509,405
State		(152,725)		85,045		86,822
Increase (decrease) in valuation allowance		71,481		2,367		5,817
Total deferred (benefit) provision		(374,910)		702,735		602,044
Total (benefit) provision	$	(371,662)	$	731,736	$	762,810

Our $1.5 billion loss of “Income (loss) before income taxes” on our Consolidated Statements of Operations and Comprehensive Income (Loss) included income of $2 million related to our foreign operations.

The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal tax rate:

	For the Years Ended December 31,
	2023	2022	2021
	% of pre-tax income/(loss)
Statutory rate	(21.0)	21.0	21.0
State income taxes, net of federal benefit	(5.0)	3.1	2.9
Rates different than statutory	0.1	—	—
Increase (decrease) in valuation allowance	4.8	—	0.2
Tax credits	(2.7)	(0.5)	(0.3)
Impairments	0.7	—	—
Other, net	(1.7)	-	(0.1)
Total (benefit) provision for income taxes	(24.8)	23.6	23.7

Deferred taxes arise because of the differences in the book and tax bases of certain assets and liabilities. Significant components of deferred tax assets and liabilities were as follows:

	As of December 31,
	2023		2022
	(In thousands)
Deferred tax assets:
NOL, interest, credit and other carryforwards	$	1,054,749	$	445,389
Accrued and prepaid expenses		866,277		672,854
Stock-based compensation		20,934		23,738
Unrealized (gains) losses on available for sale and other investments (1)		198,587		—
Discount on convertible notes and convertible note hedge transaction, net		46,636		64,643
Deferred revenue		13,197		6,903
Total deferred tax assets		2,200,380		1,213,527
Valuation allowance		(153,453)		(81,972)
Deferred tax asset after valuation allowance		2,046,927		1,131,555
Deferred tax liabilities:
Depreciation		(1,554,517)		(1,374,276)
Unrealized (gains) losses on available for sale and other investments (1)		—		(244,397)
Regulatory authorizations and other intangible amortization		(3,869,784)		(3,400,772)
Bases differences in partnerships and cost method investments (2)		(1,179,888)		(1,042,245)
Total deferred tax liabilities		(6,604,189)		(6,061,690)
Net deferred tax asset (liability)	$	(4,557,262)	$	(4,930,135)

(1) Included in this line item are deferred taxes related to, among other things, changes in the probability weighted fair value of our option to purchase certain of T-Mobile’s 800 MHz spectrum licenses. See Note 5 for further information.

(2) Included in this line item are deferred taxes related to, among other things, our noncontrolling investments in Northstar Spectrum and SNR HoldCo, including deferred taxes created by the tax amortization of the Northstar Licenses and SNR Licenses. See Note 2 for further information.

Accounting for Uncertainty in Income Taxes

In addition to filing federal income tax returns, we and one or more of our subsidiaries file income tax returns in all states that impose an income tax and a small number of foreign jurisdictions where we have immaterial operations. We are subject to United States federal, state and local income tax examinations by tax authorities for the years beginning in 2008 due to the carryover of previously incurred NOLs. We are currently under a federal income tax examination for years 2008 through 2011, 2013 through 2016, and 2018 through 2019.

A reconciliation of the beginning and ending amount of unrecognized tax benefits included in “Long-term deferred revenue and other long-term liabilities” on our Consolidated Balance Sheets was as follows:

	For the Years Ended December 31,
Unrecognized tax benefit	2023		2022		2021
	(In thousands)
Balance as of beginning of period	$	431,640	$	388,837	$	378,467
Additions based on tax positions related to the current year		3,601		35,180		303
Additions based on tax positions related to prior years		9,292		14,723		12,095
Reductions based on tax positions related to prior years		(7,219)		(7,100)		(1,400)
Reductions based on tax positions related to settlements with taxing authorities		(834)		—		—
Reductions based on tax positions related to the lapse of the statute of limitations		(352)		—		(628)
Balance as of end of period	$	436,128	$	431,640	$	388,837

We have $366 million in unrecognized tax benefits that, if recognized, could favorably affect our effective tax rate. We do not expect any material portion of this amount to be paid or settled within the next 12 months. Accrued interest and penalties on uncertain tax positions are recorded as a component of “Interest expense, net of amounts capitalized” and “Other, net,” respectively, on our Consolidated Statements of Operations and Comprehensive Income (Loss). During the years ended December 31, 2023, 2022 and 2021, we recorded $39 million, $22 million and $16 million in net interest and penalty expense to earnings, respectively. Accrued interest and penalties were $164 million and $126 million at December 31, 2023 and 2022, respectively. The above table excludes these amounts.