(12) Income Taxes:

The following is a reconciliation of the provision for income taxes computed at federal statutory rates to the effective rates for the years ended December 31, 2012, 2011 and 2010:

	2012	2011	2010
Consolidated tax provision at federal statutory rate	35.0%	35.0%	35.0%
State income tax provisions, net of federal income tax benefit	2.4	4.0	4.7
Tax reserve adjustment	(5.4)	(4.0)	(0.3)
Changes in certain deferred tax balances	3.1	(2.7)	(1.0)
Noncontrolling interest	(2.5)	(1.1)	(0.4)
Reversal of tax credits	-	4.4	-
Non-deductible transaction costs	-	-	4.2
All other, net	0.4	0.3	0.3
Effective tax rate	33.0 %	35.9 %	42.5 %

Income taxes for 2012 and 2011 include the net reversal of reserves for uncertain tax positions for $12.3 million and $9.9 million, respectively. Deferred tax balances were increased in 2012 to reflect changes in estimates and changes in state effective rates and filing methods.

Income taxes for 2011 include the reduction of deferred tax balances based on the application of enacted state tax statutes for $6.8 million, partially offset by the impact of a $10.8 million charge resulting from the enactment on May 25, 2011 of the Michigan Corporate Income Tax that eliminated certain future tax deductions.

During 2010, Frontier reduced certain deferred tax assets of $11.3 million related to Transaction costs which were not tax deductible. These costs were incurred to facilitate the Transaction and as such had to be capitalized for tax purposes. Income taxes for 2010 also include the impact of a $4.1 million charge resulting from health care reform legislation associated with the passage of the Patient Protection and Affordable Care Act and of the Health Care and Education Reconciliation Act of 2010 (the Acts). The health care reform legislation enacted in March 2010 under the Acts eliminated the tax deduction for the subsidy that the Company receives under Medicare Part D for prescription drug costs.

The components of the net deferred income tax liability (asset) at December 31 are as follows:

($ in thousands)	2012			2011

Deferred income tax liabilities:
Property, plant and equipment basis differences	$	1,959,028		$	1,896,666
Intangibles		929,749			997,455
Other, net		29,564			17,584
		2,918,341			2,911,705

Deferred income tax assets:
Pension liability		306,421			246,714
Tax operating loss carryforward		154,892			294,171
Employee benefits		177,464			154,711
State tax liability		7,422			7,358
Accrued expenses		43,162			27,645
Allowance for doubtful accounts		35,181			42,733
Other, net		14,025			22,313
		738,567			795,645
Less: Valuation allowance		(78,784	)		(108,662	)
Net deferred income tax asset		659,783			686,983
Net deferred income tax liability	$	2,258,558		$	2,224,722


Deferred tax assets and liabilities are reflected in the following
captions on the consolidated balance sheet:
Deferred income taxes	$	2,357,210		$	2,458,018
Income taxes and other current assets		(98,652	)		(233,296	)
Net deferred income tax liability	$	2,258,558		$	2,224,722

Our federal net operating loss carryforward as of December 31, 2012 is estimated as $145.0 million and our state tax operating loss carryforward as of December 31, 2012 is estimated at $1.9 billion. A portion of our state loss carryforward begins to expire in 2013 through 2032.

The provision (benefit) for federal and state income taxes, as well as the taxes charged or credited to shareholders' equity of Frontier, includes amounts both payable currently and deferred for payment in future periods as indicated below:

($ in thousands)	2012			2011			2010

Income taxes charged to the consolidated statement of
operations:
Current:
Federal	$	(3,824	)	$	(13,320	)	$	18,302
State		(1,039	)		14,252			10,260
Total current		(4,863	)		932			28,562

Deferred:
Federal		53,642			77,750			82,080
State		26,859			9,661			4,357
Total deferred		80,501			87,411			86,437
Total income taxes charged to the consolidated statement of		75,638			88,343			114,999
operations

Income taxes charged (credited) to shareholders' equity of Frontier:
Current benefit arising from stock options exercised and restricted stock		2,937			-			-
Deferred income taxes (benefits) arising from the recognition of
additional pension/OPEB liability		(58,551	)		(97,409	)		17,501
Total income taxes charged (credited) to shareholders' equity of Frontier		(55,614	)		(97,409	)		17,501

Total income taxes	$	20,024		$	(9,066	)	$	132,500

In 2011, we received refunds of $53.9 million generated in part by the 2009 retroactive change in accounting method for repairs and maintenance costs related to tax years 2008 and prior.

U.S. GAAP requires applying a "more likely than not" threshold to the recognition and derecognition of uncertain tax positions either taken or expected to be taken in the Company's income tax returns. The total amount of our gross tax liability for tax positions that may not be sustained under a "more likely than not" threshold amounts to $13.6 million as of December 31, 2012 including interest of $2.1 million. The amount of our uncertain tax positions whose statute of limitations are expected to expire during the next twelve months and which would affect our effective tax rate is $5.2 million as of December 31, 2012.

The Company's policy regarding the classification of interest and penalties is to include these amounts as a component of income tax expense. This treatment of interest and penalties is consistent with prior periods. We have recognized in our consolidated statement of operations for the year ended December 31, 2011, a net reduction in interest in the amount of $2.1 million. We are subject to income tax examinations generally for the years 2010 forward for federal and 2005 forward for state filing jurisdictions. We also maintain uncertain tax positions in various state jurisdictions.

The following table sets forth the changes in the Company's balance of unrecognized tax benefits for the years ended December 31, 2012 and 2011:

($ in thousands)
	2012			2011
Unrecognized tax benefits - beginning of year	$	33,928		$	49,180
Gross increases - current year tax positions		3,381			8,200
Gross decreases - expired statute of limitations		(25,822	)		(23,452	)
Unrecognized tax benefits - end of year	$	11,487		$	33,928

The amounts above exclude $2.1 million and $3.6 million of accrued interest as of December 31, 2012 and 2011, respectively, that we have recorded and would be payable should the Company's tax positions not be sustained.