Cheniere Energy, Inc. 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, 2015

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income tax benefit (provision) included in our reported net loss consisted of the following (in thousands):



	Year Ended December 31,
	2015			2014			2013
Current:
Federal	$	—		$	—		$	—
State	—			—			—
Foreign	(1,970		)	(4,143		)	(4,082		)
Total current	(1,970		)	(4,143		)	(4,082		)

Deferred:
Federal	—			—			—
State	—			—			—
Foreign	2,066			—			(258		)
Total deferred	2,066			—			(258		)
Total income tax benefit (provision)	$	96		$	(4,143	)	$	(4,340	)

The reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows:



	Year Ended December 31,
	2015		2014		2013
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
Non-controlling interest	(2.3	)%	(4.8	)%	(3.3	)%
State tax rate	1.9	%	4.3	%	4.5	%
Uncertain tax position	—	%	(12.5	)%	—	%
Net impact of non-U.S. taxes	(1.3	)%	(2.0	)%	(0.8	)%
Valuation allowance	(30.1	)%	(19.8	)%	(34.3	)%
Other	(3.1	)%	(0.6	)%	(1.9	)%
Effective tax rate as reported	0.1	%	(0.4	)%	(0.8	)%

Significant components of our deferred tax assets and liabilities at December 31, 2015 and 2014 are as follows (in thousands):



	December 31,
	2015			2014
Deferred tax assets
Net operating loss carryforwards and credits
Federal and foreign	$	862,218		$	637,919
State	166,321			136,917
Book deferred gain	77,182			77,182
Share-based compensation expense	71,693			28,432
Property, plant and equipment	12,957			29,483
Derivative instruments	54,052			389
Other	14,366			15,075
Total deferred tax assets	1,258,789			925,397

Deferred tax liabilities
Investment in limited partnership	(57,466		)	(46,601		)
Convertible debt	(128,948		)	—
Total deferred tax liabilities	(186,414		)	(46,601		)

Net deferred tax assets	1,072,375			878,796
Less: net deferred tax asset valuation allowance	(1,070,309		)	(878,796		)
Total net deferred tax asset	$	2,066		$	—

The federal deferred tax assets presented above do not include the state tax benefits as our net deferred state tax assets are offset with a full valuation allowance.

At December 31, 2015, we had federal and state net operating loss (“NOL”) carryforwards of approximately $3.2 billion and $2.1 billion, respectively. These NOL carryforwards will expire between 2025 and 2035.

Due to our history of NOLs, current year NOLs and significant risk factors related to our ability to generate taxable income, we have established a valuation allowance to fully offset our federal and state net deferred tax assets as of December 31, 2015 and our total net deferred tax assets as of 2014. We will continue to evaluate our ability to release the valuation allowance in the future. The increase in the net deferred tax asset valuation allowance was $191.5 million for the year ended December 31, 2015. Deferred tax assets and deferred tax liabilities are classified as non-current in our Consolidated Balance Sheets.

Changes in the balance of unrecognized tax benefits are as follows (in thousands):



	Year Ended December 31,
	2015			2014
Balance at beginning of the year	$	104,491		$	19,484
Additions based on tax positions related to current year	—			85,932
Additions for tax positions of prior years	—			—
Reductions for tax positions of prior years	(851		)	(925		)
Settlements	—			—
Balance at end of the year	$	103,640		$	104,491

Our effective tax rate will not be affected if the unrecognized federal income tax benefits provided above were recognized. Currently, we do not recognize any accrued liabilities, interest and penalties associated with the unrecognized tax benefits provided above in our Consolidated Statements of Operations or our Consolidated Balance Sheets. We recognize interest and penalties related to income tax matters as part of income tax expense.

We experienced an ownership change within the provisions of Internal Revenue Code (“IRC”) Section 382 in 2008, 2010 and 2012. An analysis of the annual limitation on the utilization of our NOLs was performed in accordance with IRC Section 382. It was determined that IRC Section 382 will not limit the use of our NOLs in full over the carryover period. We will continue to monitor trading activity in our shares which may cause an additional ownership change which could ultimately affect our ability to fully utilize our existing tax NOL carryforwards.

We are subject to taxation in the U.S., United Kingdom, Chile, Singapore and various state jurisdictions. The federal tax returns for the years before 2011 remain open to examination for the purpose of determining the amount of remaining tax NOL and other carryforwards. The federal tax returns for the years 2012 through 2015 remain open for all purposes of examination by the IRS and other taxing authorities.

Accounting for share-based compensation provides that when settlement of a share based award contributes to an NOL carryforward, neither the associated excess tax benefit nor the credit to additional paid-in capital (“APIC”) should be recorded until the share-based award deduction reduces income tax payable. Upon utilization of the loss in future periods, a benefit of $168.7 million will be reflected in APIC.