US Cellular 2012 Annual Report Download - page 60

United States Cellular Corporation
Notes to the Consolidated Financial Statements (Continued)
NOTE 4 INCOME TAXES (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2012 2011 2010
(Dollars in thousands)
Unrecognized tax benefits balance at January 1, ................... $28,745 $32,547 $34,442
Additions for tax positions of current year ...................... 6,656 4,487 5,119
Additions for tax positions of prior years ....................... 854 332 550
Reductions for tax positions of prior years ...................... (115) (1,104) (1,560)
Reductions for settlements of tax positions ..................... — (244) (5,938)
Reductions for lapses in statutes of limitations ................... (9,680) (7,273) (66)
Unrecognized tax benefits balance at December 31, ................ $26,460 $28,745 $32,547
Unrecognized tax benefits are included in Accrued taxes and Other deferred liabilities and credits in the
Consolidated Balance Sheet. If these benefits were recognized, they would have reduced income tax
expense in 2012, 2011 and 2010 by $17.2 million, $18.7 million and $21.1 million, respectively, net of the
federal benefit from state income taxes.
As of December 31, 2012, U.S. Cellular believes it is reasonably possible that unrecognized tax benefits
could decrease by approximately $4.9 million in the next twelve months. The nature of the uncertainty
primarily relates to state income tax positions and their resolution or the expiration of statutes of
limitation.
U.S. Cellular recognizes accrued interest and penalties related to unrecognized tax benefits in Income tax
expense. The amounts charged to Income tax expense related to interest and penalties resulted in a
benefit in 2012 of $2.2 million, a benefit of $2.6 million in 2011 and expense of $3.0 million in 2010,
respectively. Net accrued interest and penalties were $12.8 million and $15.6 million at December 31,
2012 and 2011, respectively.
U.S. Cellular is included in TDS’ consolidated federal income tax return. U.S. Cellular also files various
state and local income tax returns. The TDS consolidated group remains subject to federal income tax
audits for the tax years after 2009. With only a few exceptions, TDS is no longer subject to state income
tax audits for years prior to 2008.
NOTE 5 VARIABLE INTEREST ENTITIES (VIEs)
Consolidated VIEs
As of December 31, 2012, U.S. Cellular holds a variable interest in and consolidates the following VIEs
under GAAP:
• Aquinas Wireless L.P. (‘‘Aquinas Wireless’’); and
• King Street Wireless L.P. (‘‘King Street Wireless’’) and King Street Wireless, Inc., the general partner of
King Street Wireless.
From time to time, the FCC conducts auctions through which additional spectrum is made available for
the provision of wireless services. U.S. Cellular participated in spectrum auctions indirectly through
interests that it held at the time in Aquinas Wireless, King Street Wireless, Barat Wireless L.P. (‘‘Barat
Wireless’’) and Carroll Wireless L.P. (‘‘Carroll Wireless’’), collectively, the ‘‘limited partnerships.’’ Each
limited partnership participated in and was awarded spectrum licenses in one of four separate spectrum
auctions (FCC Auctions 78, 73, 66 and 58). Each limited partnership qualified as a ‘‘designated entity’’
and thereby was eligible for bidding credits with respect to licenses purchased in accordance with the
rules defined by the FCC for each auction. In most cases, the bidding credits resulted in a 25% discount
from the gross winning bid.
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