Comcast 2006 Annual Report Download - page 64

Notes to Consolidated Financial Statements Comcast 2006 Annual Report 62
Our effective income tax (expense) benefit differs from the federal
statutory amount because of the effect of the following items:
Year Ended December 31 (in millions) 2006 2005 2004
Federal tax at statutory rate $ (1,258) $ (602) $ (610)
State income taxes, net of
federal benefit (132) (105) (20)
Nondeductible losses from
joint ventures and equity
in net (losses) income of
affiliates, net 18 (24) (9)
Adjustments to prior year
income tax accrual and
related interest 97 (105) (157)
Other (72) (37) (5)
Income tax (expense) benefit $ (1,347) $ (873) $ (801)
Our net deferred tax liability consists of the following components:
December 31 (in millions) 2006 2005
Deferred tax assets:
Net operating loss carryforwards $ 309 $ 331
Differences between book and tax basis
of long-term debt 177 191
Nondeductible accruals and other 742 904
1,228 1,426
Deferred tax liabilities:
Differences between book and tax basis
of property and equipment and
intangible assets $ 25,527 $ 23,712
Differences between book and tax basis
of investments 2,633 4,442
Differences between book and tax basis
of indexed debt securities 720 644
28,880 28,798
Net deferred tax liability $ 27,652 $ 27,372
We recorded $(27) million and $319 million of deferred income
tax liabilities (assets) in 2006 through income from discontinued
operations and gain on discontinued operations, respectively. We
decreased net deferred income tax liabilities by $474 million in 2006,
principally in connection with the Adelphia and Time Warner trans-
actions, the acquisition of the interest in E! Entertainment Television
that we did not already own and Susquehanna (see Note 5).
We recorded an increase (decrease) of $79 million, $2 million and
$(12) million to net deferred income tax liabilities in 2006, 2005 and
2004, respectively, in connection with unrealized gains (losses) on
marketable securities, cash flow hedges and other amounts that
are included in accumulated other comprehensive income (loss).
Net deferred tax liabilities included in current liabilities are related
primarily to our current investments. We have federal net operating
loss carryforwards of $178 million and various state carryforwards
that expire in periods through 2026. The determination of the state
net operating loss carryforwards is dependent upon the subsidiar-
ies’ taxable income or loss, apportionment percentages and other
respective state laws that can change from year to year and impact
the amount of such carryforward.
In 2006, 2005 and 2004, income tax benefits attributable to share-
based compensation of approximately $60 million, $35 million and
$80 million, respectively, were allocated to stockholders’ equity.
In the ordinary course of business, our tax returns, including those
of acquired subsidiaries, are subject to examination by various tax-
ing authorities.
In December 2004, the Internal Revenue Service concluded an
examination of the tax returns of MediaOne Group, Inc., a sub-
sidiary acquired in our 2002 acquisition of AT&T Corp.’s cable
business, for the period of 1996 through 2000. We received a
notice of adjustment disallowing certain deductions, principally a
$1.5 billion breakup fee paid by MediaOne in 1999. The National
Office of the IRS has issued a Technical Advice Memorandum that
is adverse to us. We do not agree with the adjustment. We have
received a final assessment and are in the process of preparing an
appeal. In November 2005, we made a payment of $557 million
to reduce the accruing of interest on the pending assessment. If
we are successful in part or full, all or some of the funds would be
refundable. If the IRS prevails, there would be no material effect on
our consolidated results of operations for any period.
During 2005, the IRS proposed the disallowance of noncash inter-
est deductions taken on the ZONES (see Note 8). The National
Office of the IRS has issued a Technical Advice Memorandum
that is adverse to us. We have recognized a cumulative federal
tax benefit of $523 million through December 31, 2006, which will
reverse and become payable upon the maturity or retirement of the
ZONES; we have recorded this amount as a deferred tax liability. If
the IRS’s position is sustained, the income tax benefits previously
recognized would be disallowed, and interest would be assessed
on amounts disallowed. Accordingly, the amounts recorded as
deferred taxes would become payable. We do not agree with the
IRS’s position and have appealed. The ultimate resolution of this
issue is not expected to have a material effect on our consolidated
results of operations for any period.
Other examinations of our tax returns may result in future tax
and interest assessments by the taxing authorities, and we have
accrued a liability when we believe that it is probable that we
will be assessed. Differences between the estimated and actual
amounts determined upon ultimate resolution, individually or in the
aggregate, are not expected to have a material adverse effect on
our consolidated financial position but could possibly be material