
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
	Six Months Ended September 30,						101 Days Ended July 10,
	2014			2013			2013
	(in millions)
Income tax benefit (expense) at the federal statutory rate	$	240		$	274		$	(367	)
Effect of:
State income taxes, net of federal income tax effect	—			35			(31		)
Change in federal and state valuation allowance	(297		)	(327		)	(1,145		)
Other, net	1			(11		)	(20		)
Income tax expense	$	(56	)	$	(29	)	$	(1,563	)
Effective income tax rate	(8.2		)%	(3.7		)%	149.1		%

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 its valuation allowance of $297 million during the Successor six-month period ended September 30, 2014 primarily attributable to the net increase in deferred tax assets related to the federal and state net operating loss carryforwards generated during the period offset by a $73 million decrease related to the planned disposition of certain FCC licenses. The planned disposition of the FCC licenses results in the ability to schedule the reversal of the temporary difference to generate future taxable income during the net operating loss carryforward period when evaluating the ability to realize our deferred tax assets. The Company recognized income tax expense to increase the valuation allowance by $327 million and $1.1 billion during the Successor six-month period ended September 30, 2013 and Predecessor 101-day period ended July 10, 2013, respectively, on deferred tax assets primarily related to losses incurred during the period. 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 $56 million for the Successor six-month period ended September 30, 2014 is primarily attributable to taxable temporary differences from the tax amortization of FCC licenses during the period offset by a $73 million decrease in valuation allowance attributable to the planned disposition of certain FCC licenses. Income tax expense of $29 million for the Successor six-month period ended September 30, 2013 is primarily attributable to taxable temporary differences from amortization of FCC licenses. Income tax expense of $1.6 billion for the Predecessor 101-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. 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.

As of September 30, 2014 and March 31, 2014, we maintained unrecognized tax benefits of $159 million and $160 million, respectively. Cash paid for income taxes, net was $40 million for the Successor six-month period ended September 30, 2014 and insignificant for the Successor six-month period ended September 30, 2013 as well as during the Predecessor 101-day period ended July 10, 2013.