Liberty Broadband Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2019

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code, the most significant of which was a reduction to the U.S. federal corporate tax rate from 35 percent to 21 percent. The Company reflected the income tax effects of those aspects of the Tax Act for which the accounting was known as of December 31, 2017 and made immaterial revisions to such amounts during the allowed one year measurement period. As of December 31, 2018, the Company had completed its analysis of the tax effects of the Tax Act.

Holdco was included in the federal combined income tax return of Qurate Retail prior to the HoldCo Split-Off. For periods prior to the HoldCo Split-Off, the tax provision included in these financial statements was prepared on a stand-alone basis, as if the Company was not part of Qurate Retail. Certain HoldCo income tax related balances as of the date of the HoldCo Split-Off were recorded as equity contributions from Qurate Retail in the net amount of $1.3 billion as shown in the consolidated statement of equity. Subsequent to the HoldCo Split-Off, GCI Liberty's consolidated tax return will include HoldCo. Although the acquisition of GCI Liberty was accounted for as a reverse acquisition under GAAP, the consolidated income tax return of GCI Liberty for 2018 included a full year of GCI Liberty’s financials results (including activity prior to the Transactions) and the partial year of financial results of HoldCo for the period subsequent to the HoldCo Split-Off.

Income tax benefit (expense) consists of:



	Years ended December 31,
	2019			2018		2017
	amounts in thousands
Current:
Federal	$	(30	)	607		—
State and local	(23		)	(24	)	—
	(53		)	583		—
Deferred:
Federal	(542,259		)	190,931		160,150
State and local	(187,711		)	(8,207	)	(26,628	)
	(729,970		)	182,724		133,522
Income tax benefit (expense)	$	(730,023	)	183,307		133,522

Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017 as a result of the following:



	Years ended December 31,
	2019			2018		2017
	amounts in thousands
Computed expected tax benefit (expense)	$	(560,336	)	221,962		(206,862	)
State and local income taxes, net of federal income taxes	(158,349		)	74,105		(17,001	)
Nontaxable equity contribution	(20,353		)	7,960		—
Executive compensation	(2,437		)	(7,114	)	—
Change in state tax rate due to acquisition	—			(117,496	)	—
Change in state tax rate	10,078			37,073		—
Change in tax rate due to Tax Act	—			—		347,979
Deductible stock compensation	3,394			(131	)	14,116
Goodwill impairment	—			(28,513	)	—
Change in valuation allowance affecting tax expense	(40		)	(189	)	(384	)
Other, net	(1,980		)	(4,350	)	(4,326	)
Income tax benefit (expense)	$	(730,023	)	183,307		133,522

For the year ended December 31, 2019, income tax expense in excess of expected federal tax expense is primarily due to state income tax expense.

For the year ended December 31, 2018, the income tax benefit was lower than the U.S. statutory tax rate of 21% primarily due to a change in the effective state tax rate used to measure deferred taxes due to the acquisition as discussed in notes 1 and 4 and a goodwill impairment that is not deductible for tax purposes, partially offset by a change in the state effective tax rate used to measure deferred taxes resulting from a state law change.

For the year ended December 31, 2017, the most significant reconciling item is a net tax benefit for the effect of the change in the U.S. federal corporate tax rate from 35% to 21% on deferred taxes.

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below:



	December 31,
	2019			2018
	amounts in thousands
Deferred tax assets:
Loss and capital carryforwards	$	179,473		153,931
Deferred revenue	20,026			23,716
Accrued stock compensation	3,889			3,598
Debt	44,843			6,209
Operating lease liability	33,656			—
Other accrued liabilities	9,578			20,108
Other future deductible amounts	35,489			19,189
Deferred tax assets	326,954			226,751
Valuation allowance	(1,366		)	(1,326	)
Net deferred tax assets	325,588			225,425
Deferred tax liabilities
Investments	1,439,140			573,016
Fixed assets	209,094			232,899
Intangible assets	169,834			213,206
Operating lease ROU assets	34,629			—
Deferred tax liabilities	1,852,697			1,019,121
Net deferred tax liabilities	$	1,527,109		793,696

During the year ended December 31, 2019, there was an increase in the valuation allowance of $40,000 all of which affected tax expense.

At December 31, 2019, the Company had federal and state net operating losses and interest expense carryforwards for income tax purposes aggregating approximately $179.5 million (on a tax effected basis). Of the $179.5 million, $63.7 million are carryforwards with no expiration. The future use of the remaining carryforwards of $115.8 million are subject to limitation and expire at certain future dates. Based on current projections, $1.4 million of these carryforwards may expire unused and accordingly are subject to a valuation allowance. The carryforwards that are expected to be utilized will begin to expire in 2020.

As of December 31, 2019, the Company had not recorded tax reserves related to unrecognized tax benefits for uncertain tax positions.

As of December 31, 2019, none of GCI’s tax years prior to the HoldCo Split-Off are under audit. Qurate Retail’s tax years prior to 2016 are closed for federal income tax purposes and the IRS has completed its examination of Qurate Retail’s 2016 and 2017 tax years. Qurate Retail’s 2018 tax year is being examined currently as part of the IRS's Compliance Assurance Process program. Various states are currently examining Qurate Retail’s prior years’ state income tax returns.