
Note 11.	Income Taxes

The differences that caused our effective income tax rates to vary from the 35% U.S. federal statutory rate for income taxes were as follows:



	Successor			Predecessor
	Nine Months Ended			191 Days Ended			Nine Months Ended
	September 30,			July 10,			September 30,
	2013			2013			2012
	(in millions)
Income tax benefit (expense) at the federal statutory rate	$	277		$	(155	)	$	1,013
Effect of:
State income taxes, net of federal income tax effect	35			(15		)	104
Change in valuation allowance	(327		)	(1,410		)	(1,210		)
Other, net	(15		)	(21		)	(17		)
Income tax expense	$	(30	)	$	(1,601	)	$	(110	)
Effective income tax rate	(3.8		)%	(361.4		)%	(3.8		)%

The realization of deferred tax assets, including net operating loss carryforwards, is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards and credits. However, our history of annual losses reduces our ability to rely on expectations of future income in evaluating the ability to realize our deferred tax assets. Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely than not that the asset will not be realized. As a result, the Company recognized an increase in the valuation allowance of $327 million and $1.2 billion for the nine-month periods ended September 30, 2013 and 2012, respectively, and $1.4 billion for the 191-day period ended July 10, 2013 on deferred tax assets primarily related to losses incurred during the period that are not currently realizable and expenses recorded during the period that are not currently deducted for income tax purposes. The valuation allowance was $7.0 billion and $5.7 billion as of September 30, 2013 and December 31, 2012, respectively. We do not expect to record significant tax benefits on future net operating losses until our circumstances justify the recognition of such benefits.

Income tax expense of $30 million and $110 million for the nine-month periods ended September 30, 2013 and 2012, respectively, and $1.6 billion for the 191-day period ended July 10, 2013, is primarily attributable to taxable temporary differences from the $2.9 billion gain on the previously-held equity interests in Clearwire for the 191-day period and from amortization of FCC licenses for all other periods. The gain on the previously-held equity interests in Clearwire was principally attributable to the increase in the fair value of FCC licenses held by Clearwire. FCC licenses are amortized over 15 years for income tax purposes but, because these licenses have an indefinite life, they are not amortized for financial statement reporting purposes. These temporary differences result in net deferred income tax expense since they cannot be scheduled to reverse during the loss carryforward period. In addition, during the nine-month period ended September 30, 2012, a $33 million tax benefit was recorded as a result of the successful resolution of various state income tax uncertainties.

As of September 30, 2013 and December 31, 2012, we maintained a liability related to unrecognized tax benefits of $183 million and $171 million, respectively. Cash received or paid for income taxes was insignificant during the nine-month periods ended September 30, 2013 and 2012, as well as during the 191-day period ended July 10, 2013.