XM Radio 2015 Annual Report Download - page 126

positive and negative evidence, including historical financial performance, scheduled reversal of
deferred tax assets and liabilities, projected taxable income and tax planning strategies in making
this assessment. The weight given to the potential effects of positive and negative evidence is
based on the extent to which it can be objectively verified. The net deferred tax assets are primarily
related to net operating loss carryforwards of approximately $3,762,205. In addition to the gross
book net operating loss carryforwards, we have $827,150 of excess share-based compensation
deductions that will not be realized until we utilize these net operating losses, resulting in an
approximate gross operating loss carryforward on our tax return of $4,589,355.
As of December 31, 2015 and 2014, we had a valuation allowance related to deferred tax
assets of $49,095 and $4,995, respectively, which were not likely to be realized due to certain state
net operating loss limitations. During the year ended December 31, 2015, the tax law change in the
District of Columbia will reduce our future taxes and use less of certain net operating losses in the
future. The District of Columbia tax law change resulted in a $44,392 increase in our valuation
allowance. These net operating loss carryforwards expire on various dates through 2035.
ASC 740 requires a company to first determine whether it is more likely than not that a tax
position will be sustained based on its technical merits as of the reporting date, assuming that
taxing authorities will examine the position and have full knowledge of all relevant information. A tax
position that meets this more likely than not threshold is then measured and recognized at the
largest amount of benefit that is greater than fifty percent likely to be realized upon effective
settlement with a taxing authority. If the tax position is not more likely than not to be sustained, the
gross amount of the unrecognized tax position will not be recorded in the financial statements but
will be shown in tabular format within the uncertain income tax positions. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs due to the
following conditions: (1) the tax position is “more likely than not” to be sustained, (2) the tax
position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the
statute of limitations for the tax position has expired. A number of years may elapse before an
uncertain tax position is effectively settled or until there is a lapse in the applicable statute of
limitations. We record interest and penalties related to uncertain tax positions in Income tax
expense in our consolidated statements of comprehensive income.
As of December 31, 2015 and 2014, the gross liability for income taxes associated with
uncertain state tax positions was $253,277 and $1,432, respectively. If recognized, $183,974 of
unrecognized tax benefits would affect our effective tax rate. Uncertain tax positions are recognized
in Other long-term liabilities which, as of December 31, 2015 and 2014, we had recorded $3,525
and $1,432, respectively. No penalties have been accrued.
We have federal and certain state income tax audits pending. We do not expect the ultimate
outcome of these audits to have a material adverse effect on our financial position or results of
operations. We also do not currently anticipate that our existing reserves related to uncertain tax
positions as of December 31, 2015 will significantly increase or decrease during the twelve month
period ending December 31, 2016; however, various events could cause our current expectations to
change in the future. Should our position with respect to the majority of these uncertain tax
positions be upheld, the effect would be recorded in our consolidated statements of comprehensive
income as part of the income tax provision. We recorded interest expense of $89 and $55 for the
years ended December 31, 2015 and 2014, respectively, related to our unrecognized tax benefits.
F-35
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars and shares in thousands, except per share amounts)