7. Income Taxes

The following summarizes our income tax (provision) benefit (in thousands):


	Year Ended December 31,
	2019		2018
Current:
U.S. federal	$	(2,918)	$	47,761
State and local		2		867
Foreign		(250)		(250)
Total current		(3,166)		48,378
Deferred:
U.S. federal		(2,990)		(9,036)
State and local		3		6
Total deferred		(2,987)		(9,030)
Total income tax (provision) benefit	$	(6,153)	$	39,348

Our current income tax (provision) benefit includes an (increase) decrease to our liability for UTPs for (in thousands):


	Year Ended December 31,
	2019		2018
Unrecognized tax benefits	$	(2,467)	$	41,115
Interest expense		(1,570)		6,752
Total	$	(4,037)	$	47,867

The deferred income tax provision for each period includes the impact of equity in net income (loss) of affiliates in our consolidated statement of operations and the periodic effect of our accounting for GILTI. After utilization of our net operating loss (“NOL”) carryforward and allowable tax credits, there was no federal income tax on GILTI from Telesat.

For 2018, the statute of limitations for the assessment of additional tax expired with regard to certain of our federal UTPs. As a result, the reduction to our liability for UTPs provided a current tax benefit including the reversal of previously recognized interest, partially offset by an additional provision for the potential payment of interest on our remaining UTPs.

Public Law 117-97, known as the “Tax Cuts and Jobs,” Act made broad and complex changes to the U.S tax code first effective in 2018 including, but not limited to, (1) eliminating U.S federal income taxes on dividends from certain foreign investments, such as Telesat; (2) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations, including Telesat, as part of GILTI; (3) limiting the use of foreign tax credits (“FTCs”) to reduce U.S. federal tax liability; (4) creating the base erosion anti-abuse tax, a new minimum tax; (5) creating a new limit on deductible interest expense; and (6) changing the rules related to the use of NOL carryforwards created in tax years beginning after December 31, 2017. During 2018, in accordance with SAB 118, we recognized the income tax effects of additional regulatory guidance issued by the U.S. Treasury and Internal Revenue Service on various provisions of the Tax Cuts and Jobs Act. Based upon our interpretation of this guidance, we determined that, after the utilization of allowable tax credits, federal income tax imposed on the future recognition of GILTI from Telesat will be zero. Since we anticipate that our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets are valued at zero. Therefore, as of December 31, 2018, we reduced deferred tax assets by $1.5 million with a corresponding increase to our deferred income tax provision.

In addition to the income tax (provision) benefit presented above, we also recorded the following items (in thousands):

The (provision) benefit for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate on the loss from continuing operations before income taxes and equity in net income (loss) of affiliates because of the effect of the following items (dollars in thousands):


	Year Ended December 31,
	2019		2018
U.S. Statutory Federal Corporate Income Tax Rate		21%		21%
Tax benefit	$	1,154	$	1,104
Permanent adjustments which change statutory amounts:
State and local income taxes, net of federal income tax		107		666
Equity in net income (loss) of affiliates		(5,055)		(6,241)
Federal (provision) benefit for unrecognized tax benefits		(1,226)		46,534
Nondeductible expenses		(695)		(957)
Change in valuation allowance		(118)		(4,329)
Income tax credits		—		4,554
Foreign income taxes		(250)		(250)
Effect of U.S. tax law changes		—		(1,542)
Other, net		(70)		(191)
Total income tax (provision) benefit	$	(6,153)	$	39,348

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):


	Year Ended December 31,
	2019		2018
Balance at January 1	$	43,055	$	70,410
Decreases as a result of statute expirations		(18)		(27,355)
Balance at December 31	$	43,037	$	43,055

With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years prior to 2014. Earlier years related to certain foreign jurisdictions remain subject to examination. To the extent allowed by law, the tax authorities may have the right to examine prior periods where NOLs were generated and carried forward, and make adjustments up to the amount of the NOL carryforward. While we intend to contest any future tax assessments for uncertain tax positions, no assurance can be provided that we would ultimately prevail.

Our liability for UTPs increased from $13.3 million at December 31, 2018 to $17.4 million at December 31, 2019 and is included in long-term liabilities in the consolidated balance sheets. At December 31, 2019, we have accrued $2.0 million for the potential payment of tax-related interest. If our positions are sustained by the taxing authorities, approximately $7.3 million of the tax benefits will reduce the Company’s income tax provision from continuing operations. Other than as described above, there were no significant changes to our unrecognized tax benefits during the year ended December 31, 2019, and we do not anticipate any other significant increases or decreases to our unrecognized tax benefits during the next twelve months.

At December 31, 2019, we had federal FTC carryforwards of $109.6 million, federal NOL carryforwards of $95.3 million and New York NOL carryforwards of $1.5 million which expire from 2022 to 2034.

The reorganization of the Company pursuant to emergence from Chapter 11 of the federal bankruptcy laws during 2005 constituted an ownership change under section 382 of the Internal Revenue Code. Accordingly, use of our tax attributes, such as NOLs and tax credits generated prior to the ownership change, are subject to an annual limitation of approximately $32.6 million, subject to increase or decrease based on certain factors.

We assess the recoverability of our FTCs, NOLs and other deferred tax assets and based upon this analysis, record a valuation allowance to the extent recoverability does not satisfy the “more likely than not” recognition criteria. We continue to maintain our valuation allowance until sufficient positive evidence exists to support full or partial reversal. As of December 31, 2019, we had a valuation allowance totaling $128.5 million against our deferred tax assets for certain tax credits, primarily FTC carryovers from 2017, and loss carryovers due to the limited carryforward periods. During 2019, the valuation allowance increased by $0.1 million, which was recorded as a provision to continuing operations in our statement of operations. To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.

During 2018, the valuation allowance increased by $4.3 million, which was recorded as a provision to continuing operations in our statement of operations.

The significant components of the net deferred income tax assets are (in thousands):


	December 31,
	2019		2018
Deferred tax assets:
Net operating loss carryforwards	$	34,294	$	36,875
Foreign tax credit carryforwards		126,007		126,007
Compensation and benefits		961		953
Indemnification liabilities		66		216
Other, net		305		219
Federal benefit of uncertain tax positions		428		98
Pension costs		3,375		3,157
Investments in and advances to affiliates		992		1,360
Total deferred tax assets before valuation allowance		166,428		168,885
Less valuation allowance		(128,483)		(128,365)
Deferred tax assets	$	37,945	$	40,520

Year Ended December 31,

Tax benefit on loss from discontinued operations

Deferred tax benefit (provision) for adjustments in

other comprehensive loss (see Note 3)