Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 31, 2013
Income Taxes [Abstract]  
Income Tax Disclosure [Text Block]
Income Taxes

Income tax benefit (expense) consists of:

 
Years ended December 31,
 
2013
 
2012
 
2011
 
amounts in millions
Current:
 
 
 
 
 
Federal
$
(128
)
 
(214
)
 
(156
)
State and local
(36
)
 
(27
)
 
(32
)
Foreign
(102
)
 
(140
)
 
(120
)
 
$
(266
)
 
(381
)
 
(308
)
Deferred:
 
 
 
 
 
Federal
$
(11
)
 
(31
)
 
(42
)
State and local
122

 
11

 
(6
)
Foreign
25

 
7

 
4

 
136

 
(13
)
 
(44
)
Income tax benefit (expense)
$
(130
)
 
(394
)
 
(352
)


The following table presents a summary of our domestic and foreign earnings from continuing operations before income taxes:
 
Years ended December 31,
 
2013
 
2012
 
2011
 
amounts in millions
Domestic
$
553

 
1,769

 
770

Foreign
157

 
216

 
169

Total
$
710

 
1,985

 
939



Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 35% as a result of the following:

 
Years ended December 31,
 
2013
 
2012
 
2011
 
amounts in millions
Computed expected tax benefit (expense)
$
(249
)
 
(695
)
 
(329
)
Consolidation of previously held equity method affiliate
—

 
294

 
—

State and local income taxes, net of federal income taxes
(17
)
 
(11
)
 
(22
)
Foreign taxes, net of foreign tax credits
8

 
5

 
(3
)
Impairment of intangibles not deductible for tax purposes
(2
)
 
(29
)
 
—

Dividends received deductions
9

 
13

 
5

Alternative energy tax credits
58

 
48

 
3

Change in valuation allowance affecting tax expense
(32
)
 
(8
)
 
(15
)
Impact of change in state rate on deferred taxes
112

 
—

 
—

Other, net
(17
)
 
(11
)
 
9

Income tax benefit (expense)
$
(130
)
 
(394
)
 
(352
)


During 2013, Liberty changed its estimate of the effective state tax rate used to measure its net deferred tax liabilities, based on expected changes to the Company’s state apportionment factors.  The rate change required an adjustment to the recognized deferred taxes at the corporate level.  The change in state apportionment factors also changed the potential utilization of the Company’s state net operating loss carryforwards, which resulted in a valuation allowance being recorded for certain state net operating loss carryforwards that may expire unused. 
The tax benefit from the consolidation of a previously held equity method affiliate for the year ended December 31, 2012 is the result of the acquisition of a controlling interest in TripAdvisor in the fourth quarter of 2012. The Company recorded an $800 million dollar gain on the transaction, due to the application of purchase accounting, which was excluded from taxable income. In addition, the difference between the book basis and tax basis of TripAdvisor, as previously accounted for under the equity method, was relieved as a result of the transaction.

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below:

 
December 31,
 
2013
 
2012
 
amounts in millions
Deferred tax assets:
 
 
 
Net operating and capital loss carryforwards
$
102

 
110

Foreign tax credit carryforwards
129

 
87

Accrued stock compensation
54

 
32

Other accrued liabilities
85

 
80

Other future deductible amounts
128

 
120

Deferred tax assets
498

 
429

Valuation allowance
(68
)
 
(52
)
Net deferred tax assets
430

 
377

 
 
 
 
Deferred tax liabilities:
 
 
 
Investments
569

 
492

Intangible assets
2,281

 
2,751

Discount on exchangeable debentures
958

 
890

Deferred gain on debt retirements
313

 
321

Other
73

 
44

Deferred tax liabilities
4,194

 
4,498

Net deferred tax liabilities
$
3,764

 
4,121


The Company's deferred tax assets and liabilities are reported in the accompanying consolidated balance sheets as follows:

 
December 31,
 
2013
 
2012
 
amounts in millions
Current deferred tax asset of TripAdvisor (1)
(5
)
 
—

Current deferred tax liabilities
925

 
912

Long-term deferred tax liabilities
2,844

 
3,209

Net deferred tax liabilities
$
3,764

 
4,121



(1) TripAdvisor's deferred tax asset is not offset with Liberty's deferred tax liabilities as TripAdvisor is not included in the group tax return of Liberty. TripAdvisor's deferred tax asset has been included in other current assets in the accompanying consolidated balance sheet.

The Company's valuation allowance increased $16 million in 2013. Of the change in valuation allowance, $32 million affected tax expense, and the remainder of the change was due to purchase accounting for certain acquisitions.

The Company has not provided for deferred U.S. income taxes on undistributed earnings of certain foreign subsidiaries of TripAdvisor that are intended to be permanently reinvested outside the United States; the total amount of such earnings as of December 31, 2013 was $481 million. Should these amounts be distributed or treated under certain U.S. tax rules as having been distributed earnings of foreign subsidiaries in the form of dividends or otherwise, the Company may be subject to U.S. income taxes. Due to complexities in tax laws and various assumptions that would have to be made, it is not practicable at this time to estimate the amount of unrecognized deferred U.S. taxes on these earnings.

At December 31, 2013, Liberty had net operating losses (on a tax effected basis) and foreign tax credit carryforwards for income tax purposes aggregating approximately $102 million and $129 million, respectively, which, if not utilized to reduce domestic, state or foreign income tax liabilities in future periods, will expire as follows: $30 million in 2015; $2 million in 2016; $7 million in 2017; and $192 million beyond 2020. These net operating losses and foreign tax credit carryforwards are expected to be utilized prior to expiration, except for $68 million of net operating losses which based on current projections of domestic, state and foreign income may expire unused.
    
A reconciliation of unrecognized tax benefits is as follows:

 
Years ended December 31,
 
2013
 
2012
 
amounts in millions
Balance at beginning of year
$
146

 
123

Additions based on tax positions related to the current year
31

 
12

Additions for tax positions of prior years
5

 
2

Reductions for tax positions of prior years
(7
)
 
(4
)
Acquisition of TripAdvisor
—

 
24

Lapse of statute and settlements
(15
)
 
(11
)
Balance at end of year
$
160

 
146



As of December 31, 2013, the Company had recorded tax reserves of $160 million related to unrecognized tax benefits for uncertain tax positions. If such tax benefits were to be recognized for financial statement purposes, $103 million would be reflected in the Company's tax expense and affect its effective tax rate. Liberty's estimate of its unrecognized tax benefits related to uncertain tax positions requires a high degree of judgment. The Company has tax positions for which the amount of related unrecognized tax benefits could change during 2014, including federal transfer pricing and nonfederal tax issues. The amount of unrecognized tax benefits related to these issues could change as a result of potential settlements, lapsing of statute of limitations and revisions of estimates. It is reasonably possible that the amount of the Company's gross unrecognized tax benefits may decrease within the next twelve months by up to $41 million.

As of December 31, 2013, the Company's 2001 through 2009 tax years are closed for federal income tax purposes, and the IRS has completed its examination of the Company's 2010 through 2012 tax years. The Company's tax loss carryforwards from its 2010 through 2012 tax years are still subject to adjustment. The Company's 2013 tax year is being examined currently as part of the IRS's Compliance Assurance Process ("CAP") program.  Various states are currently examining the Company's prior years state income tax returns. QVC is currently under audit in the UK and Germany. TripAdvisor, which does not consolidate with Liberty for income tax purposes, has ongoing federal, state and foreign income tax audits by virtue of filing consolidated tax returns with Expedia in prior years.  As of December 31, 2013, no material assessments have resulted from these audits.  TripAdvisor is no longer subject to tax examinations by tax authorities for years prior to 2007.

As of December 31, 2013, the Company had recorded $28 million of accrued interest and penalties related to uncertain tax positions.