鶹app

Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.10.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2018
Income Taxes
Income Taxes

(11)Income Taxes

On December22, 2017, the U.S. government enacted the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, (1)reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2)bonus depreciation that allows for full expensing of qualified property; (3)creating a new limitation on deductible interest expense; (4)eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (5)changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December31, 2017; (6)limitations on the deductibility of certain executive compensation; and (7)requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years. The SEC issued guidance on accounting for the tax effects of the Tax Act. The Company reflected the income tax effects of those aspects of the Tax Act for which the accounting was known as of December 31, 2017 and made immaterial revisions to such amounts during the allowed one year measurement period. As of December 31, 2018, the Company has completed its analysis of the tax effects of the Tax Act.

Income tax benefit (expense) consists of:

YearsendedDecember31,

2018

2017

2016

amountsinmillions

Current:

Federal

$

(14)

38

(39)

State and local

13

(30)

(29)

Foreign

(8)

(9)

—

(9)

(1)

(68)

Deferred:

Federal

(228)

578

(388)

State and local

(2)

(21)

(39)

Foreign

63

507

—

(167)

1,064

(427)

Income tax benefit (expense)

$

(176)

1,063

(495)

Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 21% for the year ended December 31, 2018 and 35% for both of the years ended December 31, 2017 and 2016 as a result of the following:

YearsendedDecember31,

2018

2017

2016

amountsinmillions

Computed expected tax benefit (expense)

$

(219)

(289)

(497)

State and local income taxes, net of federal income taxes

18

(37)

(46)

Foreign income taxes, net of federal income taxes

22

88

—

Dividends received deductions

(2)

38

11

Taxable dividends not recognized for book purposes

(25)

(45)

(11)

Federal tax credits

30

22

67

Change in valuation allowance affecting tax expense

(62)

212

(1)

Change in tax rate due to Tax Act

(8)

929

—

Settlements with tax authorities

43

253

—

Deductible stock-based compensation

38

40

1

Income tax reserves

—

(22)

—

Non-deductible / Non-taxable interest

—

(60)

—

Write-off of tax attributes

—

(42)

—

Other, net

(11)

(24)

(19)

Income tax benefit (expense)

$

(176)

1,063

(495)

For the year ended December 31, 2018, the significant reconciling items, as noted in the table above, are deductible stock-based compensation, benefits related to federal tax credits and the resolution of historical matters with various tax authorities, partially offset by changes in the valuation allowance and taxable dividends not recognized for book purposes.

For the year ended December31, 2017, the significant reconciling items, as noted in the table above, are a net tax benefit for the effect of the changes in the U.S. federal corporate tax rate from 35% to 21% on deferred taxes, a net tax benefit for the resolution of historical matters with various tax authorities and a net tax benefit for the effects of a new U.K. tax law that changed the Company’s judgment with respect to the future realization of U.K. tax losses.

For the year ended December31, 2016 the significant reconciling item, as noted in the table above, is state income taxes offset with federal income tax credits claimed by SIRIUSXM related to research and development activities.

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:

December31,

2018

2017

amountsinmillions

Deferred tax assets:

Tax loss and credit carryforwards

$

1,355

1,017

Accrued stock compensation

97

88

Other accrued liabilities

—

175

Deferred revenue

514

502

Discount on debt

—

26

Other future deductible amounts

22

22

Deferred tax assets

1,988

1,830

Valuation allowance

(174)

(112)

Net deferred tax assets

1,814

1,718

Deferred tax liabilities:

Investments

26

110

Fixed assets

359

326

Intangible assets

2,690

2,760

Discount on debt

76

—

Other future taxable amounts

314

—

Deferred tax liabilities

3,465

3,196

Net deferred tax liabilities

$

1,651

1,478

SIRIUSXM’s deferred tax assets and liabilities are included in the amounts above although SIRIUSXM’s deferred tax assets and liabilities are not offset with 鶹app’s deferred tax assets and liabilities as SIRIUSXM is not included in the consolidated group tax return of 鶹app. 鶹app’s acquisition of a controlling interest in SIRIUSXM’s outstanding common stock during January 2013 did not cause a change in control under Section 382 of the Code.

During the year ended December31, 2018, there was a $62 million increase in the Company’s valuation allowance that affected tax expense.

At December31, 2018, the Company had a deferred tax asset of $1,355 million for federal, state and foreign net operating losses (“NOLs”), interest expense carryforwards and tax credit carryforwards. Of this amount, $952 million is recorded at the SIRIUS XM level. If not utilized to reduce income tax liabilities at SIRIUS XM in future periods, these loss carryforwards and tax credits will expire on various dates through 2038. The Company has $243 million of foreign NOLS that may be carried forward indefinitely and $4 million of foreign NOLs that will expire on various dates starting in 2035. In addition, the Company has $153 million of loss and credit carryforwards with no expiration. The remaining $3 million of carryforwards expire at certain future dates. These carryforwards are expected to be utilized in future periods, except for $174 million of tax loss and credit carryforwards which, based on current projections, may expire unused in the future and are subject to a valuation allowance.

A reconciliation of unrecognized tax benefits is as follows:

December31,

2018

2017

2016

amountsinmillions

Balance at beginning of year

$

365

304

254

Reductions for tax positions of prior years

(27)

(1)

(1)

Increase in tax positions for current year

15

16

51

Increase in tax positions from prior years

65

37

—

Settlements with tax authorities

(31)

(423)

—

Increase in tax positions from acquisition

—

432

—

Balance at end of year

$

387

365

304

As of December31, 2018, the Company had recorded tax reserves of $387million related to unrecognized tax benefits for uncertain tax positions. If such tax benefits were to be recognized for financial statement purposes, approximately $257million dollars would be reflected in the Company’s tax expense and affect its effective tax rate. We do not currently anticipate that our existing reserves related to uncertain tax positions as of December31, 2018 will significantly increase or decrease during the twelve-month period ending December31, 2019; however, various events could cause our current expectations to change in the future. The Company’s estimate of its unrecognized tax benefits related to uncertain tax positions requires a high degree of judgment.

As of December31, 2018, the Company’s tax years prior to 2015 are closed for federal income tax purposes, and the IRS has completed its examination of the Company’s 2015 and 2016 tax years. The Company’s tax loss carryforwards from its 2014 tax year are still subject to adjustment. The Company’s 2017 and 2018 tax years are being examined currently as part of the IRS’s Compliance Assurance Process program. Various states are currently examining the Company’s prior years state income tax returns. SIRIUSXM, which does not consolidate with 鶹app for income tax purposes, has certain state income tax audits pending.We do not expect the ultimate disposition of these audits to have a material adverse effect on our financial position or results of operations.

As of December31, 2018, the Company had less than $1million dollars in accrued interest and penalties recorded related to uncertain tax positions.