America Online 2015 Annual Report Download - page 72

The effective income tax rate for 2014 was 21.7% compared to 19.6%
for 2013. The increase in the effective income tax rate was primarily
due to additional income taxes on the incremental income from the
Wireless Transaction completed on February21, 2014 and was partially
offset by the utilization of certain tax credits in connection with the
Omnitel Transaction in 2014 and the effective income tax rate impact
of lower income before income taxes due to severance, pension and
benefit charges recorded in 2014 compared to severance, pension
and benefit credits recorded in 2013. The decrease in the provision
for income taxes was primarily due to lower income before income
taxes due to severance, pension and benefit charges recorded in 2014
compared to severance, pension and benefit credits recordedin 2013.
The amounts of cash taxes paid are as follows:
(dollars in millions)
Years Ended December31, 2015 2014 2013
Income taxes, net of amounts refunded $ 5,293 $ 4,093 $ 422
Employment taxes 1,284 1,290 1,282
Property and other taxes 1,868 1,797 2,082
Total $ 8,445 $ 7,180 $ 3,786
Deferred taxes arise because of differences in the book and tax bases
of certain assets and liabilities. Significant components of deferred tax
assets and liabilities are as follows:
(dollars in millions)
At December31, 2015 2014
Employee benets $ 12,220 $ 13,350
Tax loss and credit carry forwards 4,099 2,255
Other — assets 2,504 2,247
18,823 17,852
Valuation allowances (3,414) (1,841)
Deferred tax assets 15,409 16,011
Spectrum and other intangible amortization 29,945 28,283
Depreciation 24,725 23,423
Other — liabilities 6,125 5,754
Deferred tax liabilities 60,795 57,460
Net deferred tax liability $ 45,386 $ 41,449
At December31, 2015, undistributed earnings of our foreign sub-
sidiaries indefinitely invested outside the United States amounted
to approximately $1.8billion. The majority of Verizon’s cash flow is
generated from domestic operations and we are not dependent on
foreign cash or earnings to meet our funding requirements, nor do we
intend to repatriate these undistributed foreign earnings to fund U.S.
operations. Furthermore, a portion of these undistributed earnings
represent amounts that legally must be kept in reserve in accordance
with certain foreign jurisdictional requirements and are unavailable
for distribution or repatriation. As a result, we have not provided U.S.
deferred taxes on these undistributed earnings because we intend that
they will remain indefinitely reinvested outside of the United States and
therefore unavailable for use in funding U.S. operations. Determination
of the amount of unrecognized deferred taxes related to these undis-
tributed earnings is not practicable.
At December31, 2015, we had net after-tax loss and credit carry
forwards for income tax purposes of approximately $4.1billion that
primarily relate to state and foreign tax losses. Of these net after-tax
loss and credit carry forwards, approximately $2.5billion will expire
between 2016 and 2035 and approximately $1.6billion may be carried
forward indefinitely.
During 2015, the valuation allowance increased approximately
$1.6billion primarily as a result of the acquisition of AOL. The balance
of the valuation allowance at December31, 2015 and the 2015 activity
is primarily related to state and foreign tax losses.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending balance of unrecognized
tax benefits is as follows:
(dollars in millions)
2015 2014 2013
Balance at January1, $ 1,823 $ 2,130 $ 2,943
Additions based on tax positions
related to the current year 194 80 116
Additions for tax positions of prior
years 330 627 250
Reductions for tax positions of
prior years (412) (278) (801)
Settlements (79) (239) (210)
Lapses of statutes of limitations (221) (497) (168)
Balance at December31, $ 1,635 $ 1,823 $ 2,130
Included in the total unrecognized tax benefits at December31, 2015,
2014 and 2013 is $1.2billion, $1.3billion and $1.4billion, respectively,
that if recognized, would favorably affect the effective income tax rate.
We recognized the following net after-tax benefits related to interest
and penalties in the provision for income taxes:
Years Ended December31, (dollars in millions)
2015 $ 43
2014 92
2013 33
The after-tax accruals for the payment of interest and penalties in the
consolidated balance sheets are as follows:
At December31, (dollars in millions)
2015 $125
2014 169
The decrease in unrecognized tax benefits was primarily due to an
internal restructure that eliminated certain state unrecognized tax
benefits and the expiration of the statute of limitations in various juris-
dictions, partially offset by an increase in unrecognized tax benefits
related to the acquisition of AOL.
Verizon and/or its subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various state, local and foreign jurisdictions. As a large
taxpayer, we are under audit by the IRS and multiple state and foreign
jurisdictions for various open tax years. The IRS is currently examining
the Company’s U.S. income tax returns for tax years 2010-2012, Cellco
Partnership’s U.S. income tax returns for tax years 2013-2014, and
AOL’s U.S. income tax returns for tax years 2011-2012. Tax controver-
sies are ongoing for tax years as early as 2006. The amount of the
liability for unrecognized tax benefits will change in the next twelve
months due to the expiration of the statute of limitations in various
jurisdictions and it is reasonably possible that various current tax
examinations will conclude or require reevaluations of the Company’s
tax positions during this period. An estimate of the range of the
possible change cannot be made until these tax matters are further
developed or resolved.
70 Verizon Communications Inc. and Subsidiaries
Notes to Consolidated Financial Statements continued