10. INCOME TAXES:

The provision (benefit) for income taxes consisted of the following for the years ended December 31, 2014, 2013 and 2012 (in thousands):

	2014			2013			2012
Provision for income taxes - continuing operations	$	97,432		$	41,249		$	67,852
(Benefit) provision for income taxes - discontinued operations	—			(10,806		)	663
	$	97,432		$	30,443		$	68,515
Current:
Federal	$	92,609		$	16,229		$	56,106
State	5,641			(8,305		)	4,095
	98,250			7,924			60,201
Deferred:
Federal	3,170			20,214			9,151
State	(3,988		)	2,305			(837		)
	(818		)	22,519			8,314
	$	97,432		$	30,443		$	68,515

The following is a reconciliation of federal income taxes at the applicable statutory rate to the recorded provision from continuing operations:

	2014		2013		2012
Federal statutory rate	35.0	%	35.0	%	35.0	%
Adjustments-
State income taxes, net of federal tax benefit (1)	(0.1	)%	8.3	%	(0.4	)%
Non-deductible items (2)	3.4	%	1.4	%	0.3	%
Domestic Production Activities Deduction (3)	(3.2	)%	(3.8	)%	(1.4	)%
Effect of consolidated VIEs (4)	0.8	%	3.7	%	(3.4	)%
Change in state tax laws and rates	(0.1	)%	(5.5	)%	0.2	%
Changes in unrecognized tax benefits (5)	(3.4	)%	0.8	%	1.5	%
Other	(0.9	)%	0.1	%	0.2	%
Effective income tax rate	31.5	%	40.0	%	32.0	%

(1)

Included in state income taxes are deferred income tax effects related to certain acquisitions and/or intercompany mergers.

(2)

Included in 2014 is the current income taxes related to the taxable gain on sale of WHTM’s assets in Harrisburg, PA, which we acquired with the stock purchase of the Allbritton Companies in the same year. There was no book gain on this sale. Since a deferred tax liability was not established for the excess of book basis over tax basis of goodwill, deferred tax benefit does not offset the current tax expense.

(3)

During the years ended December 31, 2014 and 2013, we recorded a $0.8 million reduction in and a $2.0 million of additional benefit, respectively, related to domestic production activities deduction upon filing the respective 2013 and 2012 federal income tax returns.

(4)

Certain of our consolidated VIEs incur expenses that are not attributable to non-controlling interests because we absorb certain related losses of the VIEs. These expenses are not tax-deductible by us, and since these VIEs are treated as pass-through entities for income tax purposes, deferred income tax benefits are not recognized. For the year ended December 31, 2012, the taxes on consolidated VIEs include a release of $7.7 million of valuation allowance related to certain deferred tax assets of Cunningham, one of our consolidated VIEs, as the weight of all available evidence supported realization of the deferred tax assets. This assessment was based primarily on the sufficiency of forecasted taxable income necessary to utilize net operating loss carryforwards expiring in the years 2022 — 2029. This VIE files separate income tax returns. Any resulting tax liabilities are nonrecourse to us, and we are not entitled to any benefit resulting from the deferred tax assets of the VIE. As discussed in Variable Interest Entities under Note 1. Nature of Operations and Summary of Significant Accounting Policies, Cunningham was deconsolidated in 2014.

(5)

During the year ended December 31, 2014, we recorded a $10.8 million benefit related to the release of liabilities for unrecognized tax benefits as a result of expiration of the applicable statute of limitations. See table below which summarizes the activity related to our accrued unrecognized tax benefits.

Temporary differences between the financial reporting carrying amounts and the tax bases of assets and liabilities give rise to deferred taxes. Total deferred tax assets and deferred tax liabilities as of December 31, 2014 and 2013 were as follows (in thousands):

	2014			2013
Current and Long-Term Deferred Tax Assets:
Net operating and capital losses:
Federal	$	2,384		$	5,027
State	67,430			63,051
Broadcast licenses	11,993			27,652
Intangibles	32,182			3,451
Other	27,677			35,677
	141,666			134,858
Valuation allowance for deferred tax assets	(58,896		)	(51,062		)
Total deferred tax assets	$	82,770		$	83,796

Current and Long-Term Deferred Tax Liabilities:
Broadcast licenses	$	(36,083	)	$	(20,395	)
Intangibles	(507,545		)	(270,008		)
Property & equipment, net	(72,819		)	(52,514		)
Contingent interest obligations	(40,941		)	(51,621		)
Other	(34,314		)	(2,037		)
Total deferred tax liabilities	(691,702		)	(396,575		)
Net tax liabilities	$	(608,932	)	$	(312,779	)

Our remaining federal and state capital and net operating losses will expire during various years from 2015 to 2034, and some of them are subject to annual limitations under the Internal Revenue Code Section 382 and similar state provisions. As discussed in Income taxes within Note 1. Nature of Operations and Summary of Significant Accounting Policies, we establish valuation allowances in accordance with the guidance related to accounting for income taxes. As of December 31, 2014, a valuation allowance has been provided for deferred tax assets related to a substantial portion of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income. Although realization is not assured for the remaining deferred tax assets, we believe it is more likely than not that they will be realized in the future. During the year ended December 31, 2014, we increased our valuation allowance by $7.8 million to $58.9 million. The change in valuation allowance was primarily due to intercompany mergers, effective December 31, 2014, which we expect will decrease the utilization of the state NOL carryforwards. During the year ended December 31, 2013, we decreased our valuation allowance by $8.3 million from $59.4 million. The reduction in valuation allowance was primarily due to a law change in a state tax jurisdiction, effective for years beginning after December 31, 2014, which we expect will significantly increase the forecasted future taxable income attributable to that state and result in utilization of the state NOL carryforwards. During the year ended December 31, 2012, we decreased our valuation allowance by $19.7 million from $79.1 million. The reduction in valuation allowance was primarily due to the settlement of several audits, which resulted in the utilization of certain state NOL carryforwards which were previously fully reserved, as well as due to changes in estimates of apportionment for certain states.

As of December 31, 2014 and 2013, we had $7.1 million and $16.9 million of gross unrecognized tax benefits, respectively. Of this total, for the years ended December 31, 2014 and 2013, $6.4 and $15.6 million from respective continuing operations (net of federal effect on state tax issues) represent the amounts of unrecognized tax benefits that, if recognized, would favorably affect our effective tax rates.

The following table summarizes the activity related to our accrued unrecognized tax benefits (in thousands):

	2014			2013			2012
Balance at January 1,	$	16,883		$	25,965		$	26,088
Reductions related to prior year tax positions	—			(8,928		)	(123		)
Increases related to current year tax positions	1,450			693			—
Reductions related to settlements with taxing authorities	(2,910		)	(847		)	—
Reductions related to expiration of the applicable statute of limitations	(8,285		)	—			—
Balance at December 31,	$	7,138		$	16,883		$	25,965

In addition, we recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized $0.7 million, $1.2 million and $1.5 million of income tax expense for interest related to uncertain tax positions for the years ended December 31, 2014, 2013 and 2012, respectively.

Management periodically performs a comprehensive review of our tax positions and accrues amounts for tax contingencies. Based on these reviews, the status of ongoing audits and the expiration of applicable statute of limitations, these accruals are adjusted as necessary. Amounts accrued for these tax matters are included in the table above and long-term liabilities in our consolidated balance sheets. We believe that adequate accruals have been provided for all years.

As previously discussed under Discontinued Operations within Note 1. Nature of Operations and Summary of Significant Accounting Policies, during the year ended December 31, 2013, we reduced our liability for unrecognized tax benefits by $11.2 million related to discontinued operations. During the third quarter of 2013, we concluded that it was more likely than not that a previously unrecognized state tax position would be sustained upon review of the state tax authority, based on new information obtained during the period, resulting in a reduction in the liability of $6.1 million. The remaining $5.1 million reduction in the second quarter of 2013 was the result of application of limits under an available state administrative practice exception.

We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. All of our 2011 and subsequent federal and state tax returns remain subject to examination by various tax authorities. Some of our pre-2011 federal and state tax returns may also be subject to examination. We do not anticipate the resolution of these matters will result in a material change to our consolidated financial statements. In addition, we believe it is reasonably possible that our liability for unrecognized tax benefits related to continuing operations could be reduced by up to $4.3 million, in the next twelve months, as a result of expected statute of limitations expirations, the application of limits under available state administrative practice exceptions, and the resolution of examination issues and settlements with federal and certain state tax authorities.