FairPoint Communications 2013 Annual Report Download - page 92

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90
During the 24 days ended January 24, 2011 the Predecessor Company excluded from taxable income $1,045.4 million of
income from the discharge of indebtedness as defined under Section 108 of the Code. There was no additional income from the
discharge of indebtedness for the 341 days ended December 31, 2011 or the year ended December 31, 2012; however, the Company
did recognize additional tax benefits due to a change in the amount of its deferred tax liability for these periods, respectively,
related to a tax attribute reduction from the discharge of indebtedness. Section 108 of the Code excludes from taxable income the
amount of indebtedness discharged under a Chapter 11 case. Section 108 of the Code also requires a reduction of tax attributes
equal to the amount of excluded taxable income to be made on the first day of the tax year following the emergence from bankruptcy.
During 2012, the Company finalized the calculation of attribute reduction for federal and state income tax purposes.
Valuation Allowance. At December 31, 2013 and 2012, the Company established a valuation allowance against its deferred
tax assets of $166.8 million and $192.5 million, respectively, which consist of a $136.4 million and $159.5 million federal allowance,
respectively, and a $30.4 million and $33.0 million state allowance, respectively. During 2013 and 2012, a decrease in the Company's
valuation allowance of approximately $10.9 million and an increase of approximately $13.8 million, respectively, was allocated
to accumulated other comprehensive loss in the consolidated balance sheets. During 2013, as a result of the Company's change
in the estimated useful lives for certain fixed assets and change in realizability of certain state credits, the Company recognized a
$14.8 million reduction in the beginning of the year valuation allowance that was allocated to continuing operations.
The following is activity in the Company's valuation allowance for the year ended December 31, 2013, the year ended
December 31, 2012, the 341 days ended December 31, 2011 and the 24 days ended January 24, 2011 (in thousands):
Predecessor
Company
Year Ended
December 31,
2013
Year Ended
December 31,
2012
Three Hundred
Forty-One Days
Ended December
31, 2011
Twenty-Four
Days Ended
January 24, 2011
Balance, beginning of period $ (192,492) $ (172,875) $ (28,519) $ (105,554)
(Increase) decrease allocated to other comprehensive
loss 10,884 (13,804) (54,278) —
(Increase) decrease allocated to continuing operations 14,835 (5,813) (90,078) 77,035
Balance, end of period $ (166,773) $ (192,492) $ (172,875) $ (28,519)
Unrecognized Tax Benefits. As of December 31, 2013, the Company's total unrecognized tax benefits were $4.9 million.
Of the $4.9 million, $3.8 million was recorded as a reduction of the Company's federal and state NOL carryforwards and $1.1
million was recorded as a current state tax liability. The total unrecognized tax benefits that, if recognized, would affect the
effective tax rate were $4.5 million. The Company does not expect a significant increase or decrease in its unrecognized tax benefits
during the next twelve months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows
(in thousands):
Balance as of December 31, 2011 $ 2,893
Additions for tax positions related to the current year 170
Additions for tax positions of prior years 722
Balance as of December 31, 2012 $ 3,785
Additions for tax positions related to the current year 11
Additions for tax positions of prior years 1,059
Balance as of December 31, 2013 $ 4,855
The Company recognizes any interest and penalties accrued related to unrecognized tax benefits in income tax expense.
During the year ended December 31, 2013, the year ended December 31, 2012, the 341 days ended December 31, 2011 and the
24 days ended January 24, 2011, the Company did not make any payment of interest and penalties. There was nothing accrued in
the consolidated balance sheets for the payment of interest and penalties at December 31, 2013 and 2012, respectively, as the
remaining unrecognized tax benefits would only serve to reduce the Company's current federal and state NOL carryforwards, if
ultimately recognized.