Income Taxes

The following table summarizes the income tax provision attributable to loss from continuing operations before income taxes for each of the three years ended December 31, 2013, 2012 and 2011:



	2013			2012			2011
(dollars in millions)
Current:
United States federal	$	9		$	—		$	—
State	(1		)	(2		)	—
Foreign	(37		)	(36		)	(8		)
	(29		)	(38		)	(8		)
Deferred, net of changes in valuation allowances:
United States federal	(3		)	(3		)	(30		)
State	—			—			(1		)
Foreign	(6		)	(7		)	(2		)
Income tax provision	$	(38	)	$	(48	)	$	(41	)

The United States and Foreign components of loss from continuing operations before income taxes for each of the three years ended December 31, 2013, 2012 and 2011 are as follows:



	2013			2012			2011
(dollars in millions)
United States	$	(122	)	$	(434	)	$	(692	)
Foreign	51			60			(94		)
	$	(71	)	$	(374	)	$	(786	)

A reconciliation of the actual income tax provision and the tax computed by applying the U.S. federal rate (35%) to the loss before income taxes for each of the three years ended December 31, 2013, 2012 and 2011 is shown in the following table:



	2013			2012			2011
	(dollars in millions)
Computed tax benefit at statutory rate	$	25		$	131		$	275
Effect of earnings in jurisdictions outside of US	12			25			(13		)
Change in valuation allowance	(27		)	(145		)	(213		)
Permanent items	(44		)	(48		)	(44		)
Indefinite-lived assets	(3		)	(3		)	(26		)
Uncertain tax positions	9			(3		)	(1		)
Changes in tax rates	(7		)	(4		)	(3		)
Other, net	(3		)	(1		)	(16		)
Income tax provision	$	(38	)	$	(48	)	$	(41	)

The components of the net deferred tax assets (liabilities) as of December 31, 2013 and 2012 are as follows:



	2013			2012
	(dollars in millions)
Deferred Tax Assets:
Accrued payroll and related benefits	$	132		$	119
Deferred revenue	336			271
Unutilized tax net operating loss carry forwards	4,791			4,611
Fixed assets and intangible assets	102			134
Intercompany loss	139			148
Other	144			162
Total Deferred Tax Assets	5,644			5,445
Deferred Tax Liabilities:
Fixed assets and intangible assets	(790		)	(702		)
Deferred revenue	(76		)	(87		)
Other	(33		)	(45		)
Foreign branch income	(163		)	(37		)
Total Deferred Tax Liabilities	(1,062		)	(871		)
Net Deferred Tax Assets before valuation allowance	4,582			4,574
Valuation Allowance	(4,698		)	(4,697		)
Net Deferred Tax Liability after Valuation Allowance	$	(116	)	$	(123	)
Balance sheet classification of deferred taxes:
Net current deferred income tax asset	$	9		$	9
Net current deferred income tax liability	(2		)	(3		)
Net non-current deferred income tax asset	211			219
Net non-current deferred income tax liability	(334		)	(348		)
Net Deferred Tax Liability after Valuation Allowance	$	(116	)	$	(123	)

Under the rules prescribed by Internal Revenue Code ("IRC") Section 382 and applicable regulations, if certain transactions occur with respect to an entity's capital stock that result in a cumulative ownership shift of more than 50 percentage points by 5% stockholders over a testing period, annual limitations are imposed with respect to the entity's ability to utilize its net operating loss carry forwards and certain current deductions against any taxable income the entity achieves in future periods. During the twelve months ended December 31, 2013, the Company completed an extensive analysis of the IRC Section 382 limitation related to the Global Crossing acquisition that resulted in an increase to the Company’s net operating loss carry forwards in the amount of approximately $0.3 billion on a pre-tax basis. During the twelve months ended December 31, 2012, a similar analysis of the Company's IRC Section 382 limitation resulted in an increase to the Company's net operating loss carry forwards in the amount of approximately $1.0 billion on a pre-tax basis. There was no financial effect in the consolidated statement of operations associated with these increases as a full valuation allowance has been recorded against the additional deferred tax asset.

As of December 31, 2013, the Company had net operating loss carry forwards of approximately $9.1 billion (net of IRC Section 382 limitation) for U.S. federal income tax purposes. These loss carry forwards expire in future years through 2033 and are subject to examination by the tax authorities until three years after the carry forwards are utilized. The U.S. federal tax loss carry forwards expire as follows (dollars in millions):



Expiring December 31,	Amount
2023	$	220
2024	1,302
2025	1,186
2026	1,064
2027	1,644
2028	482
2029	694
2030	687
2031	832
2032	726
2033	221
	$	9,058

As of December 31, 2013 the Company had state net operating loss carry forwards of approximately $7.2 billion that are subject to limitations on their utilization and have various expiration periods through 2033. The Company had approximately $6.5 billion of foreign jurisdiction net operating loss carry forwards that are subject to limitations on their utilization. The majority of these foreign jurisdiction tax loss carry forwards have no expiration period.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance has been recorded against U.S. and certain foreign jurisdiction deferred tax assets for which the Company has concluded under relevant accounting standards that it is not more likely than not that the deferred tax assets are realizable. The valuation allowance for deferred tax assets was approximately $4.7 billion as of both December 31, 2013 and December 31, 2012.

The Company provides for U.S. income taxes on the undistributed earnings and the other outside basis temporary differences of foreign corporations unless they are considered indefinitely reinvested outside the United States. The amount of temporary differences related to undistributed earnings and other outside basis temporary differences of investments in foreign subsidiaries upon which U.S. income taxes have not been provided was immaterial.

The Company's liability for uncertain tax positions totaled $13 million at December 31, 2013 and $18 million at December 31, 2012. If the remaining balance of unrecognized tax benefits were realized in a future period, it would result in a tax benefit of $13 million ($18 million as of December 31, 2012) and a reduction in the effective tax rate. The Company expects that the liability for uncertain tax positions will decrease by approximately $2 million (plus $4 million of associated interest and penalty) during the twelve months ended December 31, 2014. A reconciliation of the beginning and ending balance of unrecognized tax benefits follows (dollars in millions):



	Amount
Balance as of January 1, 2011	$	6
Gross increases - Global Crossing tax positions of prior years	11
Gross decreases - tax positions of prior years	(1		)
Gross decreases - settlement with taxing authorities	(1		)
Balance as of December 31, 2011	15
Gross increases - tax positions of prior years	4
Gross increases - tax positions during 2012	1
Gross decreases - lapse of statute of limitations	(1		)
Gross decreases - settlement with taxing authorities	(1		)
Balance as of December 31, 2012	18
Gross increases - tax positions of prior years	—
Gross increases - tax positions during 2013	1
Gross decreases - lapse of statute of limitations	(6		)
Gross decreases - settlement with taxing authorities	—
Balance as of December 31, 2013	$	13

The unrecognized tax benefits in the table above do not include accrued interest and penalties of $18 million, $22 million and $20 million as of December 31, 2013, 2012 and 2011, respectively. The Company's policy is to record interest and penalties related to uncertain tax positions in income tax expense. The Company recognized accrued interest and penalties related to uncertain tax positions in income tax expense in its consolidated statements of operations of a benefit of approximately $4 million and charges of approximately $3 million and zero for the years ended December 31, 2013, 2012 and 2011, respectively.