INCOME TAXES AND ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

12 Months Ended

Dec. 31, 2024

INCOME TAXES AND ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.

INCOME TAXES AND ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

NOTE 10.   INCOME TAXES AND ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

Our income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported on our Consolidated Balance Sheets, as well as probable operating loss, tax credit and other carryforwards.  Deferred tax assets are offset by valuation allowances when we believe it is more likely than not that net deferred tax assets will not be realized.  We periodically evaluate our need for a valuation allowance.  Determining necessary valuation allowances requires us to make assessments about historical financial information as well as the timing of future events, including the probability of expected future taxable income and available tax planning opportunities.

HSSC and its domestic subsidiaries join with EchoStar in filing U.S. consolidated federal income tax returns and, in some states, combined or consolidated returns. The income taxes of domestic and foreign subsidiaries not included in the United States tax group are presented in our consolidated financial statements on a separate return basis for each tax paying entity.

As of December 31, 2024, we had foreign net operating loss carryforwards (“NOLs”) of $452 million and $142 million of related taxes which are partially offset by valuation allowances. In addition, we had no NOLs for federal and state income tax purposes.

In 2024, we have research and development credit carryforwards of $5 million available in the United States which is fully offset by a valuation allowance.

The components of the (benefit from) provision for income taxes were as follows:

	For the Years Ended December 31,
	2024		2023		2022
	(In thousands)
Current benefit (provision):
Federal	$	(22,075)	$	(64,692)	$	(83,594)
State		2,363		(12,736)		(15,430)
Foreign		(6,901)		(5,395)		(4,292)
Total current benefit (provision)	$	(26,613)	$	(82,823)	$	(103,316)
Deferred benefit (provision):
Federal	$	49,802	$	25,322	$	37,714
State		11,470		10,065		8,186
Foreign		(506)		1,310		2,975
Total deferred benefit (provision)		60,766		36,697		48,875
Total benefit (provision)	$	34,153	$	(46,126)	$	(54,441)

Our ($252) million of “Income (loss) before income taxes” on our Consolidated Statements of Operations included a loss of $57 million related to our foreign operations.

The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal tax rate:

	For the Years Ended December 31,
	2024		2023		2022
	(In thousands)
Statutory rate	$	52,975	$	90,786	$	(40,604)
State income taxes, net of federal benefit (provision)		10,927		4		(4,005)
Permanent differences		716		728		(2,233)
Impairments		—		(108,734)		—
Tax credits, including withholding tax		(1,064)		4,196		3,699
Valuation allowance		(25,967)		(45,043)		(21,359)
Rates different than statutory		5,945		16,041		9,753
Uncertain Tax Positions		(7,413)		—		—
Other		(1,966)		(4,104)		308
Total income tax benefit (provision), net	$	34,153	$	(46,126)	$	(54,441)

Deferred taxes arise because of the differences in the book and tax bases of certain assets and liabilities. Significant components of deferred tax assets and liabilities were as follows:

	As of December 31,
	2024		2023
	(In thousands)
Deferred tax assets:
Net operating losses, credit and other carryforwards	$	152,355	$	153,421
Other investments		32,953		32,785
Accrued expenses		48,121		61,177
Non-cash, stock-based compensation		5,779		5,821
Other assets		36,361		33,303
Total deferred tax assets		275,569		286,507
Valuation allowance		(193,118)		(209,411)
Deferred tax assets after valuation allowance	$	82,451	$	77,096
Deferred tax liabilities:
Property and equipment, regulatory authorizations, and other intangibles	$	(245,232)	$	(300,396)
Other liabilities		(21,761)		(21,322)
Total deferred tax liabilities		(266,993)		(321,718)
Total net deferred tax liabilities	$	(184,542)	$	(244,622)
Net deferred tax assets (liabilities) foreign jurisdiction	$	7,017	$	8,198
Net deferred tax assets (liabilities) domestic		(191,559)		(252,820)
Net deferred tax asset (liability) (1)	$	(184,542)	$	(244,622)

(1) The presentation of net deferred tax liability includes both deferred tax liabilities and deferred tax assets. Certain foreign deferred tax assets are presented as part of “Other noncurrent assets, net” on our Consolidated Balance Sheets and our deferred tax liabilities related to all other jurisdictions are reported separately as “Deferred tax liabilities, net” on our Consolidated Balance Sheets.

Overall, our net deferred tax assets were offset by a valuation allowance of $193 million and $209 million as of December 31, 2024 and 2023, respectively. The change in the valuation allowance relates to an increase in the net operating loss carryforwards for certain foreign subsidiaries, offset by a decrease due to changes in foreign exchange rates.

As of December 31, 2024, we had undistributed earnings attributable to foreign subsidiaries for which no provision for U.S. income taxes or foreign withholding taxes has been made because it is expected that such earnings will be reinvested outside the U.S. indefinitely. It is not practicable to determine the amount of the unrecognized deferred tax liability at this time.

Accounting for Uncertainty in Income Taxes

In addition to filing federal income tax returns, we and one or more of our subsidiaries file income tax returns in all states that impose an income tax. We are subject to United States federal, state and local income tax examinations by tax authorities for the years as early as tax year 2008. We are currently under a federal income tax examination for years 2008 through 2011, 2013 through 2016 and 2018 through 2019. We also file income tax returns in the United Kingdom, Germany, Brazil, India and a number of other foreign jurisdictions. We generally are open to income tax examination in these foreign jurisdictions for taxable years beginning in 2004.

A reconciliation of the beginning and ending amount of unrecognized tax benefits included in “Other non-current liabilities” on our Consolidated Balance Sheets was as follows:

	For the Years Ended December 31,
Unrecognized tax benefit	2024		2023		2022
	(In thousands)
Balance, beginning of period	$	10,321	$	7,172	$	7,294
Additions based on tax positions related to the current year		6,051		—		—
Additions based on tax positions reclassified from HSSC to EchoStar		—		3,149		—
Reductions based on tax positions related to prior years		—		—		(122)
Balance, end of period	$	16,372	$	10,321	$	7,172

As of December 31, 2024, 2023 and 2022 we had $16 million, $10 million and $7 million of unrecognized income tax benefits, all of which, if recognized, would affect our effective tax rate.

For the years ended December 31, 2024, 2023 and 2022, our income tax provision included an insignificant amount of interest and penalties.