Earthlink 2014 Annual Report Download - page 92

Table of Contents EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred tax assets and liabilities include the following as of December 31, 2013 and 2014 :
Effective tax rate.
The effective rate of 6% differs from the federal statutory rate of 35%
primarily due to the change in valuation allowance and
the change in uncertain tax positions. The change in the valuation allowance recorded for the year ended December 31, 2014 decreases the
effective tax rate by approximately 38% . The change in uncertain tax positions increases the effective tax rate by approximately 7%
. The state
items increase the effective tax rate by approximately 4%
. The current tax benefit for the year ended December 31, 2014 was primarily related
to the current release of uncertain tax positions related to prior years, partially offset by expense for Canadian tax amounts payable, current year
state taxes and penalties and interest related to uncertain tax positions. The non-
cash deferred tax expense was due primarily to the amortization
of deferred tax liabilities with indefinite useful lives.
Valuation allowance.
A deferred tax asset is reduced by a valuation allowance if based on the weight of all available evidence, it is more likely
than not (a likelihood of more than 50%) that the value of such assets will not be realized. The valuation allowance should be sufficient to reduce
the deferred tax asset to the amount that is more likely than not to be realized. The determination of whether a deferred tax asset is realizable is
based on weighting all available evidence, including both positive and negative evidence. The realization of deferred tax assets, including
carryforwards and deductible temporary differences, depends upon the existence of sufficient taxable income of the same character during the
carryback or carryforward period. All sources of taxable income available to realize the deferred tax asset, including the future reversal of
existing temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in
carryback years and tax-planning strategies, should be considered.
82
As of December 31,
2013 2014
(in thousands)
Current deferred tax assets:
Accrued liabilities and reserves
$
7,054
$
5,243
Accrued bonus
5,926
12,163
Other
4,352
4,176
Valuation allowance
(14,832
)
(20,709
)
Current deferred tax liabilities:
Accrued liabilities and reserves
(1,661
)
(1,107
)
Other
(290
)
(517
)
Total net current deferred tax asset (liability)
549
(751
)
Non-current deferred tax assets:
Net operating loss carryforwards
249,908
267,058
Capital loss carryforward
1,909
1,549
Alternative minimum tax carryforward
14,973
14,952
Accrued liabilities and reserves
3,978
4,411
Subscriber base and other intangible assets
16,836
33,169
Other
13,978
8,207
Valuation allowance
(290,604
)
(312,918
)
Non-current deferred tax liabilities:
Fixed assets
(6,332
)
(11,681
)
Accrued liabilities and reserves
(3,094
)
(3,287
)
Indefinite lived intangible assets
(2,522
)
(3,236
)
Other
(1,251
)
(672
)
Total net non-current deferred tax liability
(2,221
)
(2,448
)
Net deferred tax liability
$
(1,672
)
$
(3,199
)