Sprint - Nextel 2014 Annual Report Download - page 172

Table of Contents
Index to Consolidated Financial Statements
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)
F-89
exchanged 65.6 million Class B Common Interests, and a corresponding number of shares of Class B Common
Stock, for an equal number of shares of Class A Common Stock, and which we refer to as the Intel Exchange, on
July 9, 2013. The Sprint Exchange and the Intel Exchange resulted in significant changes to the financial statement
and tax basis, respectively, that Clearwire has in its interest in Clearwire Communications, as well as, a decrease in
the amount of temporary differences which will reverse within the NOL carryforward period (see discussion below).
Our deferred tax assets primarily represent NOL carry-forwards associated with Clearwire's operations prior to
the formation of the Company on November 28, 2008 and the portion of the partnership losses allocated to
Clearwire after the formation of the Company. The Company is subject to a change in control test under Section 382
of the Internal Revenue Code, that if met, would limit the annual utilization of any pre-change in control NOL carry-
forward as well as the ability to use certain unrealized built in losses as future tax deductions. We believe that the
Sprint Acquisition, which occurred on July 9, 2013, when combined with other issuances of our Class A Common
Stock and certain third party investor transactions involving our Class A Common Stock since September 27, 2012,
resulted in a change in control under Section 382 of the Internal Revenue Code. As a result of this change in control
and the changes in control that occurred on September 27, 2012 and December 13, 2011, respectively, we believe
that we permanently will be unable to use a significant portion of our NOL carry-forwards and credit carry-forwards,
which are collectively referred to as tax attributes, that arose before the change in control to offset future taxable
income. As a result of the annual limitations under Sections 382 and 383 of the Internal Revenue Code on the
utilization of tax attributes following an ownership change, it was determined that approximately $2.03 billion of
United States NOL carry-forwards will expire unutilized. The United States tax attributes are presented net of these
limitations. In addition, subsequent changes of ownership for purposes of Sections 382 and 383 of the Internal
Revenue Code could further diminish our use of remaining United States tax attributes.
We have recognized a deferred tax liability for the difference between the financial statement carrying value
and the tax basis of the partnership interest. As it relates to the United States tax jurisdiction, we determined that our
temporary taxable difference associated with our investment in the partnership will not completely reverse within
the carry-forward period of the NOLs. The portion of such temporary difference that will reverse within the carry-
forward period of the NOLs represents relevant future taxable income. Management has reviewed the facts and
circumstances, including the history of NOLs, projected future tax losses, and determined that it is appropriate to
record a valuation allowance against the portion of our deferred tax assets that are not deemed realizable. As a result
of the Sprint Exchange and Intel Exchange, there was a net decrease in the amount of temporary difference which
will reverse within the NOL carry-forward period. Therefore, management determined that it was appropriate to
increase the valuation allowance recorded against our deferred tax assets, along with recording a corresponding
deferred tax expense for our continuing operations. The income tax expense reflected in our condensed consolidated
statements of operations for continuing operations primarily reflects United States deferred taxes and certain state
taxes.
We file income tax returns for Clearwire and our subsidiaries in the United States federal jurisdiction and
various state and foreign jurisdictions. As of July 9, 2013, the tax returns for Clearwire for the years 2003 through
2012 remain open to examination by the Internal Revenue Service and various state tax authorities.
Our policy is to recognize any interest related to unrecognized tax benefits in interest expense or interest
income. We recognize penalties as additional income tax expense. As of July 9, 2013, we had no material uncertain
tax positions and therefore accrued no interest or penalties related to uncertain tax positions.