Income Taxes

12 Months Ended

Dec. 31, 2012

Disclosure Text Block

Income Taxes

NOTE 4INCOME TAXES

TDS' income taxesbalancesat December 31, 2012 and 2011 were as follows:

December 31,	2012		2011
(Dollars in thousands)
Federal income taxes receivable (payable)	$	(5,455)	$	77,238
State income taxes receivable		9,625		8,398

Income tax expense (benefit) is summarized as follows:

Year Ended December 31,		2012		2011		2010
(Dollars in thousands)
Current
	Federal	$	9,705	$	(94,627)	$	24,329
	State		5,092		5,583		(5,532)
Deferred
	Federal		61,113		214,722		67,466
	State		(2,328)		(12,175)		8,925
		$	73,582	$	113,503	$	95,188

A reconciliation of TDS' income tax expense computed at the statutory rate to the reported income tax expense, and the statutory federal income tax expense rate to TDS' effective income tax expense rate is as follows:

Year Ended December 31,		2012				2011				2010
		Amount		Rate		Amount		Rate		Amount		Rate
(Dollars in millions)
Statutory federal income tax expense and rate		$	68.7	35.0	%	$	127.3	35.0	%	$	100.0	35.0	%
State income taxes, net of federal benefit (1)			8.4	4.2			(20.9)	(5.7)			2.7	1.0
Effect of noncontrolling interests			-	-			(3.0)	(0.8)			(4.0)	(1.4)
Correction of deferred taxes (2)			(6.1)	(3.1)			6.0	1.6			-	-
Other differences, net			2.6	1.4			4.1	1.1			(3.5)	(1.3)
Total income tax expense and rate		$	73.6	37.5	%	$	113.5	31.2	%	$	95.2	33.3	%
(1)	Net state income taxes include changes in the valuation allowance. The 2011 benefit primarily relates to the ability to utilize net operating losses as a result of state income tax law changes. In addition, state tax benefits related to the settlement of state tax audits and the expiration of statutes of limitations are included in 2012, 2011 and 2010.
(2)	TDS recorded immaterial adjustments to correct deferred tax balances in 2012 and 2011 related to tax basis adjustments and law changes that related to periods prior to 2012 and 2011, respectively.

TDS' current Net deferred income tax asset totaled $43.4million and $40.9million at December 31, 2012 and 2011, respectively, and primarily represents the deferred tax effects of accrued liabilities and the allowance for doubtful accounts on customer receivables.

TDS' noncurrent deferred income tax assets and liabilities at December 31, 2012 and 2011 and the temporary differences that gave rise to them were as follows:

December 31,		2012		2011
(Dollars in thousands)
Noncurrent deferred tax assets
	Net operating loss (“NOL”) carryforwards	$	121,111	$	103,709
	Stock-based compensation		53,330		46,410
	Compensation and benefits - other		32,484		17,314
	Deferred rent		16,862		13,897
	Other		32,654		20,246
			256,441		201,576
	Less valuation allowance		(69,108)		(48,714)
	Total noncurrent deferred tax assets		187,333		152,862
Noncurrent deferred tax liabilities
	Property, plant and equipment		666,201		608,669
	Licenses/intangibles		250,860		224,817
	Partnership investments		127,331		123,898
	Other		5,521		4,191
	Total noncurrent deferred tax liabilities		1,049,913		961,575
Net noncurrent deferred income tax liability		$	862,580	$	808,713

At December 31, 2012, TDS and certain subsidiaries had $1,923.2million of state NOL carryforwards (generating a $102.0 million deferred tax asset) available to offset future taxable income. The state NOL carryforwards expire between 2013and 2032.Certain subsidiaries had federal NOL carryforwards (generating a $19.1 million deferred tax asset) available to offset their future taxable income. The federal NOL carryforwards expire between 2013 and 2032. A valuation allowance was established for certain state NOL carryforwards and federal NOL carryforwards since it is more likely than not that a portion of such carryforwards will expire before they can be utilized.

A summary of TDS' deferred tax asset valuation allowance is as follows:
		2012		2011		2010
(Dollars in thousands)
Balance at January 1,		$	49,686	$	71,014	$	63,870
	Charged to income tax expense		5,268		(28,511)		(293)
	Charged to other accounts		15,548		7,183		7,437
Balance at December 31,		$	70,502	$	49,686	$	71,014
As of December 31, 2012, the valuation allowance reduced current deferred tax assets by $1.4 million and noncurrent deferred tax assets by $69.1 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
		2012		2011		2010
(Dollars in thousands)
Unrecognized tax benefits balance at January 1,		$	28,841	$	34,002	$	45,034
	Additions for tax positions of current year		7,027		4,369		5,271
	Additions for tax positions of prior years		1,673		171		179
	Reductions for tax positions of prior years		(7)		(1,973)		(3,517)
	Reductions for settlements of tax positions		(21)		(976)		(12,549)
	Reductions for lapses in statutes of limitations		(9,093)		(6,752)		(416)
Unrecognized tax benefits balance at December 31,		$	28,420	$	28,841	$	34,002

Unrecognized tax benefits are included in Accrued taxes and Other deferred liabilities and credits in the Consolidated Balance Sheet.If these benefits were recognized, they would have reduced income tax expense in 2012, 2011 and 2010 by $18.6 million, $18.2million and $22.2 million, respectively, net of the federal benefit from state income taxes.

As of December 31, 2012, TDS believes it is reasonably possible that unrecognized tax benefits could decreaseby approximately $5.5 millionin the next twelve months. The nature of the uncertainty primarily relates to state income tax positions and their resolution or the expiration of statutes of limitation.

TDS recognizes accrued interest and penalties related to unrecognized tax benefits in Income tax expense. The amounts charged to Income tax expense related to interest and penalties resulted in a benefit in 2012 of $1.5 million, a benefit in 2011 of $2.5 million and expense in 2010 of $1.8 million, respectively. Net accrued interest and penalties were $13.2 million and $15.0 million at December 31, 2012 and 2011, respectively.

TDS and its subsidiaries file federal and state income tax returns. TDS remains subject to federal income tax audits for the tax years after 2009. With only a few exceptions, TDS is no longer subject to state income tax audits for years prior to 2008.