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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income taxes | Income taxes Components of current and deferred income tax expense (benefit) are as follows ($000’s omitted):
| 2013 |  | 2012 |  | 2011
Current provision (benefit) |  |  |  |  |
Federal | $ | 5,725 |  |  | $ | (8,523 | ) |  | $ | (71,796 | )
State and other | (1,596 | ) |  | (14,068 | ) |  | (28,116 | )
| $ | 4,129 |  |  | $ | (22,591 | ) |  | $ | (99,912 | )
Deferred provision (benefit) |  |  |  |  |
Federal | $ | (1,833,580 | ) |  | $ | — |  |  | $ | — |
State and other | (262,843 | ) |  | — |  |  | — |
| $ | (2,096,423 | ) |  | $ | — |  |  | $ | — |
Income tax expense (benefit) | $ | (2,092,294 | ) |  | $ | (22,591 | ) |  | $ | (99,912 | )
The following table reconciles the statutory federal income tax rate to the effective income tax rate:
| 2013 |  | 2012 |  | 2011
Income taxes at federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Effect of state and local income taxes, net of federal tax | 4.0 |  |  | 3.0 |  |  | 3.0 |
Deferred tax asset valuation allowance | (438.0 | ) |  | (37.7 | ) |  | (7.0 | )
Tax contingencies | 0.3 |  |  | (10.6 | ) |  | 28.4 |
Goodwill impairment | — |  |  | — |  |  | (28.7 | )
Other | 2.3 |  |  | (2.0 | ) |  | 1.5 |
Effective rate | (396.4 | )% |  | (12.3 | )% |  | 32.2 | %
Deferred tax assets and liabilities reflect temporary differences arising from the different treatment of items for tax and accounting purposes. Components of our net deferred tax asset are as follows ($000’s omitted):
| At December 31,
| 2013 |  | 2012
Deferred tax assets: |  |  |
Non-deductible reserves and other | $ | 475,730 |  |  | $ | 486,990 |
Inventory valuation reserves | 770,566 |  |  | 953,266 |
Net operating loss ("NOL") carryforwards: |  |  |
Federal | 726,398 |  |  | 785,302 |
State | 292,195 |  |  | 320,831 |
Alternative minimum tax credits | 28,683 |  |  | 25,338 |
Energy credit and charitable contribution carryforward | 39,978 |  |  | 38,895 |
| 2,333,550 |  |  | 2,610,622 |
Deferred tax liabilities: |  |  |
Capitalized items, including real estate basis differences, deducted for tax, net | (39,449 | ) |  | (84,637 | )
Trademarks and tradenames | (50,047 | ) |  | (56,714 | )
| (89,496 | ) |  | (141,351 | )
Valuation allowance | (157,300 | ) |  | (2,469,271 | )
Net deferred tax asset (liability) | $ | 2,086,754 |  |  | $ | — |
Our effective tax rate is affected by a number of factors, the most significant of which are the valuation allowance related to our deferred tax assets and changes in our unrecognized tax benefits. Due to the effects of these factors, our effective tax rates in 2013, 2012, and 2011 are not correlated to the amount of our income or loss before income taxes. The income tax benefit for 2013 resulted from the reversal of substantially all of the valuation allowance related to our deferred tax assets while the income tax benefits for 2012 and 2011 resulted primarily from the favorable resolution of certain federal and state income tax matters. From 2007 to 2011, we generated significant deferred tax assets primarily from asset impairments combined with reduced operational profitability. We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods. We conduct our evaluation by considering all available positive and negative evidence. This evaluation considers, among other factors, historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for the U.S. housing industry and broader economy. Based on our evaluation through June 30, 2013, we fully reserved our net deferred tax assets due to the uncertainty of their realization. One of the primary pieces of negative evidence we considered was the significant losses we incurred in recent years, including being in a three-year cumulative pre-tax loss position, which we exited in 2013. Consistent with the above process, we evaluated the need for a valuation allowance against our deferred tax assets and, in the third quarter of 2013, determined that the valuation allowance against substantially all of our federal deferred tax assets and a significant portion of our state deferred tax assets was no longer required. Accordingly, we reversed $2.1 billion of valuation allowance in the third quarter. When a change in valuation allowance is recognized in an interim period, a portion of the valuation allowance to be reversed must be allocated to the remaining interim periods. Accordingly, an additional $73.7 million of the remaining valuation allowance reversed in the fourth quarter of 2013, which was offset by a tax provision based on fourth quarter earnings. At December 31, 2013, the valuation allowance relates primarily to state net operating loss carryforwards that have not met the "more likely than not" realization threshold. We conducted our evaluation by considering all available positive and negative evidence. The principal positive evidence that led to the reversal of the valuation allowance included: (1) our emergence from a three-year cumulative loss in 2013; (2) the significant positive income we generated during 2012 and 2013, including seven consecutive quarters of pretax income as of December 31, 2013; (3) continued improvements in 2013 over recent years in other key operating metrics, including revenues, gross margin, and overhead leverage; (4) our forecasted future profitability; (5) improvement in our financial position; and (6) significant evidence that conditions in the U.S. housing industry are more favorable than in recent years and our belief that conditions will continue to be favorable over the long-term. Even if industry conditions weaken from current levels, we believe we will be able to adjust our operations to sustain long-term profitability. The accounting for deferred taxes is based upon estimates of future results. Differences between estimated and actual results could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated results of operations or financial position. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time. Our gross federal NOL carryforward is approximately $2.1 billion, a portion of which is subject to the provisions of Internal Revenue Code Section 382. We also have significant state NOLs in various tax jurisdictions. These NOLs may generally be carried forward from 5 to 20 years, depending on the tax jurisdiction, with NOLs expiring between 2014 and 2033. As a result of our merger with Centex in 2009, our ability to use certain of Centex’s pre-ownership change NOL carryforwards and built-in losses or deductions is limited by Section 382 of the Internal Revenue Code. Our Section 382 limitation is approximately $67.4 million per year for NOLs, losses realized on built-in loss assets that are sold within 60 months of the ownership change, and certain deductions. We do not believe that the Section 382 limitation will prevent the Company from using Centex’s pre-ownership change federal NOL carryforwards and built-in losses or deductions. Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. At December 31, 2013, we had $173.3 million of gross unrecognized tax benefits, of which $21.5 million (net of federal benefit) would impact the effective tax rate if recognized. At December 31, 2012, we had $170.4 million of gross unrecognized tax benefits, of which $166.3 million would impact the effective rate if recognized. It is reasonably possible within the next twelve months that our gross unrecognized tax benefits may decrease by up to $128.2 million, excluding interest and penalties, primarily due to expirations of certain statutes of limitations and potential settlements. Additionally, we had accrued interest and penalties of $33.1 million and $31.5 million at December 31, 2013 and 2012, respectively. Our net tax-related interest and penalties totaled expense of $3.0 million in 2013 and a benefit of $5.4 million in 2012. We are currently under examination by the IRS and various state taxing jurisdictions and anticipate finalizing certain of the examinations within the next twelve months. The final outcome of these examinations is not yet determinable. The statute of limitations for our major tax jurisdictions remains open for examination for tax years 2003 to 2013. A reconciliation of the change in the unrecognized tax benefits is as follows ($000’s omitted):
| 2013 |  | 2012 |  | 2011
Unrecognized tax benefits, beginning of period | $ | 170,425 |  |  | $ | 171,863 |  |  | $ | 258,016 |
Increases related to tax positions taken during a prior period | 12,877 |  |  | 8,782 |  |  | 2,699 |
Decreases related to tax positions taken during a prior period | (7,502 | ) |  | (9,373 | ) |  | (79,719 | )
Increases related to tax positions taken during the current period | 381 |  |  | 11,797 |  |  | 1,620 |
Decreases related to settlements with taxing authorities | (1,434 | ) |  | — |  |  | — |
Reductions as a result of a lapse of the applicable statute of limitations | (1,437 | ) |  | (12,644 | ) |  | (10,753 | )
Unrecognized tax benefits, end of period | $ | 173,310 |  |  | $ | 170,425 |  |  | $ | 171,863 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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