Income Taxes

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



	Six Months Ended September 30,
	2017			2016
	(in millions)
Income tax (expense) benefit at the federal statutory rate	$	(192	)	$	94
Effect of:
State income taxes, net of federal income tax effect	(38		)	5
State law changes, net of federal income tax effect	(27		)	3
Increase deferred tax liability for business activity changes	(65		)	—
Credit for increasing research activities	8			—
Tax benefit from organizational restructuring	—			42
Change in federal and state valuation allowance	(60		)	(314		)
Other, net	(16		)	(5		)
Income tax expense	$	(390	)	$	(175	)
Effective income tax rate	71.2		%	(65.1		)%

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 income tax expense to increase the valuation allowance by $60 million and $314 million during the six-month periods ended September 30, 2017 and 2016, respectively. We do not expect to record significant tax benefits on future net operating losses until our circumstances justify the recognition of such benefits.

We believe it is more likely than not that our remaining deferred income tax assets, net of the valuation allowance, will be realized based on current income tax laws and expectations of future taxable income stemming from the reversal of existing deferred tax liabilities. Uncertainties surrounding income tax law changes, shifts in operations between state taxing jurisdictions and future operating income levels may, however, affect the ultimate realization of all or some of these deferred income tax assets.

Income tax expense of $390 million for the six-month period ended September 30, 2017 was primarily attributable to taxable temporary differences from the tax amortization of FCC licenses and tax expense on pre-tax gains from spectrum license exchanges during the period. We also increased our deferred state income tax liability by $65 million for changes in business activities causing us to become subject to income tax in additional tax jurisdictions. This resulted in a change in the measurement of the carrying value of our deferred tax liability on temporary differences, primarily FCC licenses. Income tax expense of $175 million for the six-month period ended September 30, 2016 was primarily attributable to taxable temporary differences from the tax amortization of FCC licenses and tax expense on pre-tax gains from spectrum license exchanges during the period, partially offset by tax benefits from the reversal of certain state income tax valuation allowance on deferred tax assets. As a result of organizational restructuring, which drove a sustained increase in the profitability of specific legal entities, we revised our estimate regarding the realizability of the involved entities’ deferred state tax assets and recorded a state tax benefit of $42 million. 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 cannot be scheduled to reverse during the loss carryforward period against our deferred tax assets. As a result, a valuation allowance is recorded against our loss carryforward and other excess deferred tax assets resulting in a net deferred tax expense.

As of September 30, 2017 and March 31, 2017, we maintained unrecognized tax benefits of $207 million and $190 million, respectively. Cash paid for income taxes, net, was $52 million and $31 million for the six-month periods ended September 30, 2017 and 2016, respectively.