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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Taxes |
Income Taxes | (11) Income Taxes On May 19, 2012, CVR became a member of the consolidated federal tax group of American Entertainment Properties Corporation ("AEPC"), a wholly-owned subsidiary of Icahn Enterprises, and subsequently entered into a tax allocation agreement with AEPC (the "Tax Allocation Agreement"). The Tax Allocation Agreement provides that AEPC will pay all consolidated federal income taxes on behalf of the consolidated tax group. CVR is required to make payments to AEPC in an amount equal to the tax liability, if any, that it would have paid if it were to file as a consolidated group separate and apart from AEPC. As of December 31, 2012, the Company has an overpayment of approximately $9.2 million for federal income taxes due to AEPC under the Tax Allocation Agreement, to be applied as a credit against the Company's estimated tax to be paid during the first quarter of 2013. This amount is recorded as due from affiliate in the Consolidated Balance Sheet. During the year ended December 31, 2012, the Company paid $150.7 million to AEPC under the Tax Allocation Agreement. Income tax expense (benefit) is comprised of the following:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
|  | (in thousands) |
Current |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 237,349 |  | $ | 141,305 |  | $ | 13,434 |
State |  |  | 25,369 |  |  | 7,972 |  |  | 1,262 |
Total current |  |  | 262,718 |  |  | 149,277 |  |  | 14,696 |
Deferred |  |  |  |  |  |  |  |  |  |
Federal |  |  | (39,857 | ) |  | 40,350 |  |  | 808 |
State |  |  | 2,723 |  |  | 19,936 |  |  | (1,721 | )
Total deferred |  |  | (37,134 | ) |  | 60,286 |  |  | (913 | )
Total income tax expense |  | $ | 225,584 |  | $ | 209,563 |  | $ | 13,783 |
The following is a reconciliation of total income tax expense (benefit) to income tax expense (benefit) computed by applying the statutory federal income tax rate (35%) to pretax income (loss):
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
|  | (in thousands) |
Tax computed at federal statutory rate |  | $ | 223,361 |  | $ | 205,843 |  | $ | 9,826 |
State income taxes, net of federal tax benefit |  |  | 23,910 |  |  | 20,600 |  |  | 1,923 |
State tax incentives, net of federal tax expense |  |  | (5,355 | ) |  | (3,174 | ) |  | (2,382 | )
Domestic production activities deduction |  |  | (16,467 | ) |  | (10,562 | ) |  | (2,025 | )
Non-deductible share-based compensation |  |  | 7,256 |  |  | 2,000 |  |  | 6,747 |
Non-deductible transaction costs |  |  | 4,208 |  |  | — |  |  | — |
IRS interest (income)/expense, net |  |  | 93 |  |  | 34 |  |  | (814 | )
Noncontrolling interest |  |  | (11,895 | ) |  | (11,474 | ) |  | — |
Partnership basis adjustment |  |  | — |  |  | 4,174 |  |  | — |
Other, net |  |  | 473 |  |  | 2,122 |  |  | 508 |
Total income tax expense |  | $ | 225,584 |  | $ | 209,563 |  | $ | 13,783 |
The Company earns Kansas High Performance Incentive Program ("HPIP") credits for qualified business facility investment within the state of Kansas. CVR recognized a net income tax benefit of approximately $4.5 million, $3.2 million and $2.4 million on a credit of approximately $6.9 million, $4.9 million and $3.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. The Company earns Oklahoma Investment credits for qualified manufacturing facility investment within the state of Oklahoma. CVR recognized a net income tax benefit of approximately $0.9 million on a credit of approximately $1.3 million for the year ended December 31, 2012. The income tax effect of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities at December 31, 2012 and 2011 are as follows:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |
|  | (in thousands) |
Deferred income tax assets: |  |  |  |  |  |  |
Allowance for doubtful accounts |  | $ | 751 |  | $ | 475 |
Personnel accruals |  |  | 12,925 |  |  | 6,437 |
Inventories |  |  | 3,606 |  |  | 2,097 |
Unrealized derivative losses, net |  |  | 26,206 |  |  | — |
Accrued expenses |  |  | 2,080 |  |  | 101 |
State tax credit carryforward, net of federal expense |  |  | 14,425 |  |  | 17,682 |
Contingent liabilities |  |  | 10,845 |  |  | — |
Deferred financing |  |  | — |  |  | 76 |
Other |  |  | 2,050 |  |  | 2,695 |
Total gross deferred income tax assets |  |  | 72,888 |  |  | 29,563 |
Deferred income tax liabilities: |  |  |  |  |  |  |
Unrealized derivative gains, net |  |  | — |  |  | (31,990 | )
Property, plant, and equipment |  |  | (282,219 | ) |  | (224,452 | )
Investment in CVR Partners |  |  | (109,701 | ) |  | (134,920 | )
Deferred financing |  |  | (1,046 | ) |  | — |
Prepaid expenses |  |  | (9,439 | ) |  | (4,945 | )
Total gross deferred income tax liabilities |  |  | (402,405 | ) |  | (396,307 | )
Net deferred income tax liabilities |  | $ | (329,517 | ) | $ | (366,744 | )
At December 31, 2012, CVR has Kansas state income tax credits of approximately $9.8 million, which are available to reduce future Kansas state regular income taxes. These credits, if not used, will expire in 2027 to 2028. Additionally, CVR has Oklahoma state income tax credits of approximately $3.8 million which are available to reduce future Oklahoma state regular income taxes. These credits have an indefinite life. In assessing the realizability of deferred tax assets including credit carryforwards, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Although realization is not assured, management believes that it is more likely than not that all of the deferred tax assets will be realized and thus, no valuation allowance was provided as of December 31, 2012 and 2011. A reconciliation of the unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010 is as follows:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
|  | (in thousands) |
Balance beginning of year |  | $ | 17,712 |  | $ | 245 |  | $ | — |
Increase based on prior year tax positions |  |  | 4,755 |  |  | — |  |  | 245 |
Decrease based on prior year tax positions |  |  | (30 | ) |  | — |  |  | — |
Increases and decrease in current year tax positions |  |  | 14,705 |  |  | 17,467 |  |  | — |
Settlements |  |  | — |  |  | — |  |  | — |
Reductions related to expirations of statute of limitations |  |  | (193 | ) |  | — |  |  | — |
Balance end of year |  | $ | 36,949 |  | $ | 17,712 |  | $ | 245 |
Included in the balance of unrecognized tax benefits as of December 31, 2012 are $10.4 million of tax benefits that, if recognized, would affect the effective tax rate. The balance of unrecognized tax benefits as of December 2011 and 2010 include no amounts that, if recognized, would affect the effective tax rate. CVR recognizes interest expense (income) and penalties on uncertain tax positions and income tax deficiencies (refunds) in income tax expense. CVR recognized interest expense of $0.5 million and penalties of $0.2 million during 2012. As of December 31, 2012, CVR has recognized a liability for interest of $0.5 million and penalties of approximately $0.2 million. CVR recognized in 2011 approximately $0.1 million of federal and state interest expense and penalties and in total, as of December 31, 2011, had recognized no liability for interest or penalties. CVR recognized interest income in 2010 of approximately $1.3 million related to 2005 and 2006 amended returns to carryback 2007 losses and in total, as of December 31, 2010, had recognized no liability for interest or penalties CVR believes that it is reasonably possible that a decrease of up to $1.5 million in unrecognized tax benefits related to state exposures may be necessary within the coming year. At December 31, 2012, the Company's tax filings are generally open to examination in the United States for the tax years ended December 31, 2009 through December 31, 2011 and in various individual states for the tax years ended December 31, 2008 through December 31, 2011.

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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 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: 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 Reference 6: 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 7: 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 8: 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=6881521&loc=d3e23780-122690 + Details
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