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(11)听听Income Taxes

On December听22, 2017, the U.S. government enacted the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, (1)听reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2)听bonus depreciation that allows for full expensing of qualified property; (3)听creating a new limitation on deductible interest expense; (4)听eliminating the corporate alternative minimum tax (鈥淎MT鈥�) and changing how existing AMT credits can be realized; (5)听changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December听31, 2017; (6)听limitations on the deductibility of certain executive compensation; and (7)听requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years. The SEC issued guidance on accounting for the tax effects of the Tax Act. 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 has completed its analysis of the tax effects of the Tax Act.

Income tax benefit (expense) consists of:

Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 21% for the year ended December 31, 2018 and 35% for both of the years ended December 31, 2017 and 2016 as a result of the following:

For the year ended December 31, 2018, the significant reconciling items, as noted in the table above, are deductible stock-based compensation, benefits related to federal tax credits and the resolution of historical matters with various tax authorities, partially offset by changes in the valuation allowance and taxable dividends not recognized for book purposes.

For the year ended December听31, 2017, the significant reconciling items, as noted in the table above, are a net tax benefit for the effect of the changes in the U.S. federal corporate tax rate from 35% to 21% on deferred taxes, a net tax benefit for the resolution of historical matters with various tax authorities and a net tax benefit for the effects of a new U.K. tax law that changed the Company鈥檚 judgment with respect to the future realization of U.K. tax losses.

For the year ended December听31, 2016 the significant reconciling item, as noted in the table above, is state income taxes offset with federal income tax credits claimed by SIRIUS听XM related to research and development activities.

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:

SIRIUS听XM鈥檚 deferred tax assets and liabilities are included in the amounts above although SIRIUS听XM鈥檚 deferred tax assets and liabilities are not offset with Liberty鈥檚 deferred tax assets and liabilities as SIRIUS听XM is not included in the consolidated group tax return of Liberty. Liberty鈥檚 acquisition of a controlling interest in SIRIUS听XM鈥檚 outstanding common stock during January 2013 did not cause a change in control under Section 382 of the Code.

During the year ended December听31, 2018, there was a $62 million increase in the Company鈥檚 valuation allowance that affected tax expense.

At December听31, 2018, the Company had a deferred tax asset of $1,355 million for federal, state and foreign net operating losses (鈥淣OLs鈥�), interest expense carryforwards and tax credit carryforwards. Of this amount, $952 million is recorded at the SIRIUS XM level. If not utilized to reduce income tax liabilities at SIRIUS XM in future periods, these loss carryforwards and tax credits will expire on various dates through 2038. The Company has $243 million of foreign NOLS that may be carried forward indefinitely and $4 million of foreign NOLs that will expire on various dates starting in 2035. In addition, the Company has $153 million of loss and credit carryforwards with no expiration. The remaining $3 million of carryforwards expire at certain future dates. These carryforwards are expected to be utilized in future periods, except for $174 million of tax loss and credit carryforwards which, based on current projections, may expire unused in the future and are subject to a valuation allowance.

A reconciliation of unrecognized tax benefits is as follows:

As of December听31, 2018, the Company had recorded tax reserves of $387听million related to unrecognized tax benefits for uncertain tax positions. If such tax benefits were to be recognized for financial statement purposes, approximately $257听million dollars would be reflected in the Company鈥檚 tax expense and affect its effective tax rate. We do not currently anticipate that our existing reserves related to uncertain tax positions as of December听31, 2018 will significantly increase or decrease during the twelve-month period ending December听31, 2019; however, various events could cause our current expectations to change in the future. The Company鈥檚 estimate of its unrecognized tax benefits related to uncertain tax positions requires a high degree of judgment.

As of December听31, 2018, the Company鈥檚 tax years prior to 2015 are closed for federal income tax purposes, and the IRS has completed its examination of the Company鈥檚 2015 and 2016 tax years. The Company鈥檚 tax loss carryforwards from its 2014 tax year are still subject to adjustment. The Company鈥檚 2017 and 2018 tax years are being examined currently as part of the IRS鈥檚 Compliance Assurance Process program. Various states are currently examining the Company鈥檚 prior years state income tax returns. SIRIUS听XM, which does not consolidate with Liberty for income tax purposes, has certain state income tax audits pending.听We do not expect the ultimate disposition of these audits to have a material adverse effect on our financial position or results of operations.

As of December听31, 2018, the Company had less than $1听million dollars in accrued interest and penalties recorded related to uncertain tax positions.