U.S. Cellular's Prepaid income taxes were $41.4 million and $0.7 million at December 31, 2010 and 2009, respectively. At December 31, 2010, Prepaid income taxes included prepaid federal income taxes of $39.7 million and prepaid state income taxes of $1.7 million. At December 31, 2009, Prepaid income taxes included prepaid state income taxes of $0.7 million, and Accrued taxes included $2.0 million of accrued federal income taxes. The timing of the enactment of federal bonus depreciation provisions in 2010 caused a significant increase in prepaid federal income taxes at December 31, 2010.

Year Ended December 31,		2010			2009		2008
(Dollars in thousands)
Current
	Federal	$	19,290		$	69,942	$	76,305
	State		(11,059	)		648		10,089
Deferred
	Federal		57,759			41,884		(49,428	)
	State		15,968			5,376		(27,899	)
		$	81,958		$	117,850	$	9,067

A reconciliation of U.S. Cellular's income tax expense computed at the statutory rate to the reported income tax expense, and the statutory federal income tax expense rate to U.S. Cellular's effective income tax expense rate is as follows:

Year Ended December 31,		2010					2009					2008
		Amount			Rate		Amount			Rate		Amount			Rate
(Dollars in millions)
Statutory federal income tax expense and rate		$	84.4		35.0	%	$	122.2		35.0	%	$	24.4		35.0	%
State income taxes, net of federal benefit			5.0		2.1			0.1		0.1			(10.5	)	(15.1	)
Effect of noncontrolling interests			(4.6	)	(1.9	)		(4.8	)	(1.4	)		(4.5	)	(6.4	)
Effect of gains (losses) on investments,
	sales of assets and impairment of assets		—		—			—		—			1.3		1.8
Other differences, net			(2.8	)	(1.2	)		0.4		0.1			(1.6	)	(2.3	)
Effective income tax expense and rate		$	82.0		34.0	%	$	117.9		33.8	%	$	9.1		13.0	%

U.S. Cellular's current net deferred tax asset totaled $26.8 million and $21.6 million at December 31, 2010 and 2009, respectively. The 2010 and 2009 current net deferred tax asset primarily represents the deferred tax effects of accrued liabilities and the allowance for doubtful accounts on customer receivables.

U.S. Cellular's noncurrent deferred income tax assets and liabilities at December 31, 2010 and 2009 and the temporary differences that gave rise to them were as follows:

December 31,		2010			2009
(Dollars in thousands)
Noncurrent deferred tax assets
	Net operating loss ("NOL") carryforwards	$	33,724		$	26,884
	Stock-based compensation		17,204			15,526
	Other		38,998			35,584
			89,926			77,994
	Less valuation allowance		(28,252	)		(17,977	)
	Total noncurrent deferred tax assets		61,674			60,017
Noncurrent deferred tax liabilities
	Licenses/intangibles		246,599			221,754
	Property, plant and equipment		323,334			288,094
	Partnership investments		71,566			61,272
	Other		3,619			4,217
	Total noncurrent deferred tax liabilities		645,118			575,337
Net noncurrent deferred income tax liability		$	583,444		$	515,320

At December 31, 2010, U.S. Cellular and certain subsidiaries had $617.9 million of state NOL carryforwards (generating a $27.8 million deferred tax asset) available to offset future taxable income primarily of the individual subsidiaries which generated the losses. The state NOL carryforwards expire between 2011 and 2030. Certain subsidiaries had federal NOL carryforwards (generating a $5.9 million deferred tax asset) available to offset future taxable income. The federal NOL carryforwards expire between 2011 and 2030. 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.

At December 31, 2010 and 2009, U.S. Cellular had $32.5 million and $34.4 million, respectively, in unrecognized tax benefits. If these benefits were recognized, they would have reduced income tax expense in 2010 and 2009 by $21.1 million and $18.9 million, respectively, net of the federal benefit from state income taxes.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

		2010			2009			2008
(Dollars in thousands)
Balance at January 1,		$	34,442		$	27,786		$	33,890
	Additions for tax positions of current year		5,119			4,966			4,858
	Additions for tax positions of prior years		550			3,114			692
	Reductions for tax positions of prior years		(1,560	)		(1,399	)		(5,320	)
	Reductions for settlements of tax positions		(5,938	)		—			(3,177	)
	Reductions for lapses in statutes of limitations		(66	)		(25	)		(3,157	)
Balance at December 31,		$	32,547		$	34,442		$	27,786

Unrecognized tax benefits are included in Accrued taxes and Other deferred liabilities and credits in the Consolidated Balance Sheet.

As of December 31, 2010, U.S. Cellular believes it is reasonably possible that unrecognized tax benefits could decrease by approximately $7.0 million in the next twelve months. The nature of the uncertainty primarily relates to state income tax positions and the expiration of statutes of limitation.

U.S. Cellular 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 totaled $3.0 million, $2.1 million and $4.4 million in 2010, 2009 and 2008, respectively. Accrued interest and penalties were $19.3 million and $15.7 million at December 31, 2010 and 2009, respectively.

U.S. Cellular is included in TDS' consolidated federal income tax return. U.S. Cellular also files various state and local income tax returns. The TDS consolidated group remains subject to federal income tax audits for the tax years after 2007.

In conjunction with an Internal Revenue Service (“IRS”) audit of the TDS consolidated group's federal income tax returns for the tax years 2002 through 2005, TDS made a $38 million deposit with the IRS in 2009 related to an initial proposed assessment made by the IRS related to a specific tax position. U.S. Cellular then paid TDS a $34 million deposit in 2009, which represented U.S. Cellular's proportionate share of the TDS deposit. The purpose of the deposit was to eliminate any potential interest expense subsequent to the deposit. The IRS subsequently conceded the specific tax position, and after closure of the IRS audit for the tax years 2002 through 2005, the IRS returned this $38 million deposit to TDS in 2010, and TDS also returned U.S. Cellular's $34 million deposit in 2010.