Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
 
Income tax provision included in our reported net loss consisted of the following (in thousands): 
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
Current:
 
 
 
 
 
 
Federal
 
$
—

 
$
—

 
$
—

State
 
—

 
—

 
—

Foreign
 
4,082

 
145

 
277

Total current
 
4,082

 
145

 
277

 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
Federal
 
—

 
—

 
—

State
 
—

 
—

 
—

Foreign
 
258

 
(141
)
 
(117
)
Total deferred
 
258

 
(141
)
 
(117
)
Total income tax provision
 
$
4,340

 
$
4

 
$
160


 
The reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows: 
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
U.S. statutory tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
Minority interest
 
(3.3
)%
 
(1.4
)%
 
(0.8
)%
State tax benefit (net of federal benefits)
 
4.5
 %
 
2.7
 %
 
6.2
 %
Foreign income tax provision
 
(0.8
)%
 
—
 %
 
—
 %
Deferred tax asset valuation reserve
 
(34.3
)%
 
(33.2
)%
 
(42.1
)%
Other
 
(1.9
)%
 
(3.1
)%
 
1.7
 %
Effective tax rate as reported
 
(0.8
)%
 
—
 %
 
—
 %


Significant components of our deferred tax assets and liabilities at December 31, 2013 and 2012 are as follows (in thousands): 
 
 
December 31,
 
 
2013
 
2012
Deferred tax assets
 
 
 
 
Net operating loss carryforwards (1)
 
 
 
 
Federal
 
$
608,631

 
$
476,228

State
 
111,624

 
83,242

Book deferred gain
 
77,182

 
81,388

Share-based compensation expense
 
24,089

 
5,679

Other
 
31,191

 
17,864

Total deferred tax assets
 
$
852,717

 
$
664,401

 
 
 
 
 
Deferred tax liabilities
 
 

 
 

Investment in limited partnership
 
$
(109,884
)
 
$
(94,434
)
Other
 
(142
)
 
(307
)
Total deferred tax liabilities
 
$
(110,026
)
 
$
(94,741
)
 
 
 
 
 
Net deferred tax assets
 
742,691

 
569,660

Less: net deferred tax asset valuation allowance (2)
 
(742,691
)
 
(569,402
)
Total net deferred tax asset
 
$
—

 
$
258

 
1)
The federal net operating loss ("NOL") carryforward expires between 2028 and 2033. The state NOL carryforward expires between 2020 and 2028.
2)
A valuation allowance equal to our net deferred tax asset balance has been established due to the uncertainty of realizing the tax benefits related to our net deferred tax assets. The change in the net deferred tax asset valuation allowance was $173.0 million for the year ended December 31, 2013, of which $190.5 million relates to continuing operations and $11.4 million relates to other comprehensive income. Additionally, $6.1 million relates to an additional deferred tax asset and related valuation reserve due to previously unrecorded net deferred tax assets.
Changes in the balance of unrecognized tax benefits are as follows (in thousands): 
 
Year Ended December 31,
 
2013
 
2012
Balance at beginning of the year
$
19,773

 
$
135,349

Additions based on tax positions related to current year
—

 
—

Additions for tax positions of prior years
2,162

 
—

Reductions for tax positions of prior years
(2,451
)
 
(115,576
)
Settlements
—

 
—

Balance at end of the year
$
19,484

 
$
19,773

 
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. Any applicable interest and penalties related to unrecognized tax benefits would be recorded to our income tax provision.

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 net operating losses ("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 currently file tax returns in the U.S. federal jurisdiction, the United Kingdom and various state and local jurisdictions. For tax years before 2009 the statute for assessment of taxes is closed. The Internal Revenue Service is currently examining Cheniere Marketing's 2009 and 2010 income tax returns. The Louisiana Department of Revenue is currently examining Cheniere LNG Terminals, Inc.'s 2008 - 2010 income tax returns.

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 $67.0 million will be reflected in APIC.