Note 5: Income Taxes



Components of Income Tax Expense (Benefit)
Year ended December 31 (in millions)	2018			2017			2016
Current Expense (Benefit):
Federal	$	2,026		$	2,411		$	3,190
State	639			277			480
Foreign	425			389			194
	3,090			3,077			3,864
Deferred Expense (Benefit):
Federal	546			(10,651		)	1,183
State	(167		)	11			153
Foreign	(89		)	(6		)	98
	290			(10,646		)	1,434
Income tax expense (benefit)	$	3,380		$	(7,569	)	$	5,298

Our income tax expense (benefit) differs from the federal statutory amount because of the effect of the items detailed in the table below.



Year ended December 31 (in millions)	2018			2017			2016
Federal tax at statutory rate	$	3,201		$	5,374		$	5,014
State income taxes, net of federal benefit	212			299			373
Foreign income taxed at different rates	147			70			65
Nontaxable income attributable to noncontrolling interests	(20		)	(45		)	(128		)
Adjustments to uncertain and effectively settled tax positions, net	144			(62		)	24
Accrued interest on uncertain and effectively settled tax positions, net	29			3			17
Excess tax benefits recognized on share-based compensation	(75		)	(297		)	—
Federal tax legislation	(120		)	(12,682		)	—
Other	(138		)	(229		)	(67		)
Income tax expense (benefit)	$	3,380		$	(7,569	)	$	5,298

We base our provision for income taxes on our current period income, changes in our deferred income tax assets and liabilities, income tax rates, changes in estimates of our uncertain tax positions, tax planning opportunities available in the jurisdictions in which we operate and following the adoption of new accounting guidance related to share-based compensation in 2017, excess tax benefits or deficiencies that arise when the tax consequences of share-based compensation differ from amounts previously recognized in the statement of income. We recognize deferred tax assets and liabilities when there are temporary differences between the financial reporting basis and tax basis of our assets and liabilities and for the expected benefits of using net operating loss carryforwards. When a change in the tax rate or tax law has an impact on deferred taxes, we apply the change based on the years in which the temporary differences are expected to reverse. We record the change in our consolidated financial statements in the period of enactment.

The determination of the income tax consequences of a business combination includes identifying the tax basis of assets and liabilities acquired and any contingencies associated with uncertain tax positions assumed or resulting from the business combination. Deferred tax assets and liabilities related to temporary differences of an acquired entity are recorded as of the date of the business combination and are based on our estimate of the ultimate tax basis that will be accepted by the various tax authorities. We record liabilities for contingencies associated with prior tax returns filed by the acquired entity based on criteria set forth in the appropriate accounting guidance. We adjust the deferred tax accounts and the liabilities periodically to reflect any revised estimated tax basis and any estimated settlements with the various tax authorities. The effects of these adjustments are recorded to income tax expense (benefit).

From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty. In these cases, we evaluate our tax position using the recognition threshold and the measurement attribute in accordance with the accounting guidance related to uncertain tax positions. Examples of these transactions include business acquisitions and dispositions, including consideration paid or received in connection with these transactions, certain financing transactions, and the allocation of income among state and local tax jurisdictions. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We determine whether it is more likely than not that a tax position will be sustained on examination, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in our consolidated financial statements. We classify interest and penalties, if any, associated with our uncertain tax positions as a component of income tax expense (benefit).

Current and deferred foreign income taxes are incurred primarily by Sky’s and NBCUniversal’s foreign subsidiaries. In 2018, 2017 and 2016, we had foreign income before taxes of $855 million, $1 billion and $871 million, respectively, on which foreign income tax expense (benefit) was recorded.

Sky Acquisition

We recorded a $1.9 billion increase in deferred income tax liabilities in connection with the acquisition of Sky, which were primarily related to foreign temporary differences associated with intangible assets and net operating losses, and were included in the preliminary allocation of purchase price. Although it operates primarily outside the United States, Sky will be included in certain of our consolidated state tax returns, which impacted our effective tax rates in those jurisdictions. As a result, we also recorded a $244 million net decrease in the deferred state tax liability, net of federal benefit, on our existing temporary differences, which was included in income tax expense in the fourth quarter of 2018.

Tax Reform

On December 22, 2017, new federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law. The 2017 Tax Act reduced the federal corporate income tax rate to 21% from 35% effective January 1, 2018. The rate change, along with certain immaterial changes in tax basis resulting from the 2017 Tax Act, resulted in a reduction of our net deferred tax liabilities of $12.4 billion and a corresponding deferred income tax benefit in 2017. Our federal income tax expense for periods beginning in 2018 was based on the new rate.

The 2017 Tax Act also changed the taxation of foreign earnings, and companies generally are not subject to United States federal income taxes upon the receipt of dividends from foreign subsidiaries and are not permitted foreign tax credits related to such dividends. Beginning in 2018, in general, we no longer record United States federal income tax on our share of the income of our foreign subsidiaries, and we no longer record a benefit for foreign tax credits related to that income. Upon enactment, we reversed $382 million of net deferred tax liabilities related to our cumulative undistributed foreign earnings and deferred tax assets for related foreign tax credits, resulting in a corresponding net tax benefit in 2017. Additionally, upon enactment, there was a one-time deemed repatriation tax on undistributed foreign earnings and profits (the “transition tax”). We recognized tax expense of $101 million related to the transition tax in 2017.

The 2017 Tax Act also provides for immediate deduction of 100% of the costs of qualified property, including significant portions of our capital expenditures and film and television productions costs, that are incurred and the property placed in service during the period from September 27, 2017 to December 31, 2022. This provision will begin to phase down by 20% per year beginning January 1, 2023 and will be completely phased out as of January 1, 2027.

The adjustments to deferred tax assets and liabilities, and the liability related to the transition tax included provisional amounts estimated based on information available as of December 31, 2017. In 2018, we completed our analysis of the provisional items, resulting in immaterial adjustments primarily related to cumulative temporary differences and the one-time deemed repatriation tax on undistributed foreign earnings and profits.

In February 2018, the Bipartisan Budget Act of 2018 was enacted. As part of this legislation, various tax provisions that had expired on December 31, 2016 were retroactively extended to December 31, 2017, including the statute permitting the immediate deduction for certain film and television production costs. We recorded an income tax benefit of $128 million in the first quarter of 2018 as a result of the enactment of this legislation.



Components of Net Deferred Tax Liability
December 31 (in millions)	2018		2017
Deferred Tax Assets:
Net operating loss carryforwards	$	1,926	$	481
Nondeductible accruals and other	2,656		2,092
Less: Valuation allowance	632		377
	3,950		2,196
Deferred Tax Liabilities:
Differences between book and tax basis of property and equipment and intangible assets	29,139		25,223
Differences between book and tax basis of investments	491		466
Differences between book and tax basis of long-term debt	604		673
Differences between book and tax basis of foreign subsidiaries and undistributed foreign earnings	85		39
	30,319		26,401
Net deferred tax liability	$	26,369	$	24,205

Changes in our net deferred tax liability in 2018 that were not recorded as deferred income tax benefit (expense) are primarily related to increases of $1.9 billion related to acquisitions, including Sky, and $42 million associated with our purchase of a noncontrolling interest, and a decrease of $72 million associated with items included in other comprehensive income (loss). Our net deferred tax liability includes $15 billion related to cable franchise rights that will remain unchanged unless we recognize an impairment or dispose of a cable franchise or there is a change in the tax law. Additionally, we recorded an immaterial cumulative effect adjustment to retained earnings and accumulated other comprehensive income (loss) in 2018 as a result of the adoption of updated guidance that permitted companies to reclassify disproportionate tax effects recorded in accumulated other comprehensive income as a result of the 2017 Tax Act.

As of December 31, 2018, we had federal net operating loss carryforwards of $268 million, and various state net operating loss carryforwards, the majority of which expire in periods through 2038. As of December 31, 2018, we also had foreign net operating loss carryforwards of $6.6 billion related to the foreign operations of Sky and NBCUniversal, the majority of which can be carried forward indefinitely. The determination of the realization of the state and foreign net operating loss carryforwards is dependent on our subsidiaries’ taxable income or loss, apportionment percentages, redetermination from taxing authorities, and state and foreign laws that can change from year to year and impact the amount of such carryforwards. We recognize a valuation allowance if we determine it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. As of December 31, 2018 and 2017, our valuation allowance was primarily related to state and foreign net operating loss carryforwards. The increase in the valuation allowance in 2018 was primarily related to the acquisition of Sky. As a result of the timing of the acquisition, the deferred tax assets and liabilities related to Sky are preliminary and subject to change, including our assessment of the realization of Sky’s deferred tax assets of $1.5 billion related to net operating losses. We will finalize the amounts recognized as soon as possible as we obtain the information necessary to complete the analysis, but no later than one year from the acquisition date. See Note 8 for further information on the Sky acquisition.

Uncertain Tax Positions

Our liability for uncertain tax positions as of December 31, 2018 totaled $1.0 billion, which excludes the federal benefits on state tax positions that were recorded as deferred income taxes. Included in our liability for uncertain tax positions was $153 million related to tax positions of NBCUniversal and NBCUniversal Enterprise for which we have been indemnified by GE, their former parent company. We are indemnified by GE for any income tax liability attributable to the NBCUniversal contributed businesses for periods prior to the close of the NBCUniversal transaction in January 2011 and also for any income tax liability attributable to NBCUniversal Enterprise for periods prior to the date of the NBCUniversal redemption transaction in March 2013.



Reconciliation of Unrecognized Tax Benefits
(in millions)	2018			2017			2016
Gross unrecognized tax benefits, January 1	$	1,497		$	1,443		$	1,441
Additions based on tax positions related to the current year	229			121			74
Additions based on tax positions related to prior years	125			319			72
Additions from acquired subsidiaries	130			—			13
Reductions for tax positions of prior years	(346		)	(251		)	(66		)
Reductions due to expiration of statutes of limitations	(75		)	(70		)	(44		)
Settlements with tax authorities	(17		)	(65		)	(47		)
Gross unrecognized tax benefits, December 31	1,543			1,497			1,443
Positions paid	(531		)	(688		)	(340		)
Liability for uncertain tax positions	$	1,012		$	809		$	1,103

Our liability for uncertain tax positions represents the amounts recorded for potential payment obligations. Our gross unrecognized tax benefits also include amounts related to positions for which tax has been assessed and paid. If we were to recognize our gross unrecognized tax benefits in the future, $1.1 billion, which includes amounts indemnified by GE, would impact our effective tax rate and the remaining amount would increase our deferred income tax liability. The amount and timing of the recognition of any such tax benefit is dependent on the completion of examinations of our tax filings by the various tax authorities and the expiration of statutes of limitations. It is reasonably possible that certain tax contests could be resolved within the next 12 months that may result in a decrease in our effective tax rate.

As of December 31, 2018 and 2017, our accrued interest associated with our liability for uncertain tax positions was $203 million and $173 million, respectively. As of December 31, 2018 and 2017, $56 million and $43 million, respectively, of these amounts were related to tax positions of NBCUniversal and NBCUniversal Enterprise for which we have been indemnified by GE.

The IRS has completed its examination of our income tax returns for all years through 2016. Various states are examining our state tax returns and the tax years of those tax returns currently under examination vary by state, with most of the periods relating to tax years 2000 and forward. Various foreign jurisdictions are examining our tax returns and the tax years of those tax returns currently under examination vary by country, with most of the periods relating to tax years 2010 and forward.