Income Taxes

We use the asset and liability method to reflect income taxes on our financial statements, pursuant to ASC 740. We recognize deferred tax assets and liabilities by applying enacted tax rates to the differences between the carrying value of existing assets and liabilities and their respective tax basis and to loss carryforwards. Tax credit carryforwards are recorded as deferred tax assets. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the change occurs. We assess the validity of deferred tax assets and loss and tax credit carryforwards and provide valuation allowances when we determine it is more likely than not that such assets, losses, or credits will not be realized. We have not recognized deferred taxes relative to foreign subsidiaries’ earnings that are deemed to be permanently reinvested. Any related taxes associated with such earnings are not material.

Deferred tax liabilities (assets) were comprised of the following at December 31:



(in millions)	2016			2015
Depreciation	$	229.5		$	256.3
Deferred revenue	15.8			13.9
Intangibles	8.9			16.2
Gain on debt redemption	25.7			38.5
State taxes	30.2			32.0
Other	31.5			27.5
Deferred tax liabilities	341.6			384.4
Claims and insurance	(149.6		)	(165.7		)
Net operating loss carryforwards	(302.9		)	(302.4		)
Employee benefit accruals	(201.8		)	(221.9		)
Sale/Leaseback transaction	(99.9		)	(107.0		)
Other	(46.0		)	(54.4		)
Deferred tax assets	(800.2		)	(851.4		)
Valuation allowance	461.7			470.5
Net deferred tax assets	(338.5		)	(380.9		)
Net deferred tax liability	$	3.1		$	3.5

The net deferred tax liability of $3.1 million and $3.5 million as of December 31, 2016 and 2015, respectively, is included as separate line items in the accompanying balance sheets. Current income tax receivable was $9.1 million and $2.3 million as of December 31, 2016 and 2015, respectively, and is included in “Prepaid expenses and other” in the accompanying balance sheets.

As of December 31, 2016, the Company has remaining federal net operating loss carryforwards of approximately $741.5 million. Deemed ownership changes that occurred in July 2011, in July 2013 and in January 2014 imposed annual and cumulative limits under the Code on the utilization of these carryforwards. These limits are not expected to inhibit the Company’s ability to utilize these losses over their carry forward periods. These carryforwards expire between 2028 and 2036 if not used. As of December 31, 2016, the Company has foreign tax credit and other credit carryforwards of approximately $7.8 million. Other than $0.9 million of minimum tax credit, these credit carryforwards will likely not be utilized and will expire between 2017 and 2018 if not used.

As of December 31, 2016 and 2015, a valuation allowance of $461.7 million and $470.5 million has been established for deferred tax assets because, based on available sources of future taxable income, it is more likely than not that those assets will not be realized.

A reconciliation between income taxes at the federal statutory rate and the consolidated effective tax rate follows:



	2016		2015		2014
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net	2.9	%	(50.0	)%	(4.9	)%
Foreign tax rate differential	(3.3	)%	43.2	%	1.4	%
Permanent differences	6.9	%	(88.6	)%	(6.4	)%
Valuation allowance	(13.0	)%	(243.2	)%	(31.9	)%
Benefit from intraperiod tax allocation under ASC 740	—	%	265.9	%	—	%
Net change in unrecognized tax benefits	(10.2	)%	(11.4	)%	17.8	%
Benefit from settlement of litigation & audits	—	%	54.5	%	1.6	%
Other, net (primarily prior year return to provision)	(5.7	)%	110.5	%	6.6	%
Effective tax rate	12.6	%	115.9	%	19.2	%

The income tax provision (benefit) consisted of the following:



(in millions)	2016			2015			2014
Current:
Federal	$	(1.7	)	$	(0.8	)	$	(23.6	)
State	(0.7		)	(1.6		)	3.7
Foreign	5.9			7.1			4.0
Current income tax provision (benefit)	$	3.5		$	4.7		$	(15.9	)

Deferred:
Federal	$	—		$	(8.7	)	$	—
State	—			(3.0		)	—
Foreign	(0.4		)	1.9			(0.2		)
Deferred income tax benefit	$	(0.4	)	$	(9.8	)	$	(0.2	)

Income tax provision (benefit)	$	3.1		$	(5.1	)	$	(16.1	)

Based on the income (loss) before income taxes:
Domestic	$	3.9		$	(33.2	)	$	(106.2	)
Foreign	20.7			28.8			22.4
Income (Loss) before income taxes	$	24.6		$	(4.4	)	$	(83.8	)

YRC Worldwide applies the intraperiod tax allocation rules of ASC 740 to allocate income taxes among continuing operations, discontinued operations, extraordinary items, other comprehensive income (loss), and additional paid-in capital when our situation meets the criteria as prescribed in the rule. During 2015, the Company recognized $11.7 million of deferred benefit in the statement of consolidated operations and an equal and offsetting deferred tax expense in other comprehensive income included in the statement of consolidated comprehensive loss due to the application of the exception within the intraperiod tax allocation rules. There was no deferred benefit recognized in 2016 or 2014, as the exception did not apply. This allocation has no effect on total tax provision or total valuation allowance.

Uncertain Tax Positions

A rollforward of the total amount of unrecognized tax benefits for the years ended December 31 is as follows:



(in millions)		2016			2015
Unrecognized tax benefits at January 1		$	30.6		$	23.1

Increases related to:
	Tax positions taken during a prior period	17.3			11.5
	Tax positions taken during the current period	0.4			0.3

Decreases related to:
	Tax positions taken during a prior period	—			—
	Lapse of applicable statute of limitations	(3.0		)	(3.2		)
	Settlements with taxing authorities	—			(1.1		)

Unrecognized tax benefits at December 31		$	45.3		$	30.6

At December 31, 2016 and 2015, there are $10.9 million and $7.6 million of benefits that, if recognized, would affect the effective tax rate. We accrued interest of $0.6 million and $2.0 million for the years ended December 31, 2016 and 2015 and reversed $1.5 million and $3.3 million of previously accrued interest on uncertain tax positions during the years ended December 31, 2016 and 2015 for a net reduction of $0.9 million and $1.3 million for 2016 and 2015. The reversal related primarily to settlements and other favorable resolution of prior uncertain positions. The total amount of interest accrued for uncertain tax positions is $2.2 million and $3.1 million as of December 31, 2016 and 2015. During the year ended December 31, 2016, we paid inconsequential amounts of tax and interest to settle foreign audits of tax years 2006 through 2011 for certain of our subsidiaries, and we reduced our previously recorded liability for unrecognized tax benefits accordingly. We have not accrued any penalties relative to uncertain tax positions. We have elected to treat interest and penalties on uncertain tax positions as interest expense and other operating expenses, respectively.

It is reasonably possible that the existing unrecognized tax benefits may decrease over the next twelve months by as much as $0.9 million as a result of developments in examinations and/or litigation, or from the expiration of statutes of limitation.

Tax years that remain subject to examination for our major tax jurisdictions as of December 31, 2016:



Statute remains open		2005-2015
Tax years currently under examination/exam completed		2005-2013
Tax years not examined		2014-2016