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Income Taxes | 9 Months Ended
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Sep. 30, 2012
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income Tax Expense (Benefit) The table below shows our consolidated income tax expense (benefit) from continuing operations (excluding noncontrolling interest) and our imputed tax rates for the periods indicated (in millions):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2012 |  | 2011 |  | 2012 |  | 2011
Income tax expense (benefit) | $ | 81 |  |  | $ | 20 |  |  | $ | 23 |  |  | $ | (45 | ) | (1 | )
Imputed tax rate | 16 | % |  | 10 | % |  | 19 | % |  | 20 | % |
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(1) | Includes a tax benefit of approximately $76 million related to the election to consolidate our CCFC and Calpine groups for federal income tax reporting purposes for the nine months ended September 30, 2011.
Accounting for Income Taxes Intraperiod Tax Allocation — In accordance with U.S. GAAP, intraperiod tax allocation provisions require allocation of a tax expense (benefit) to continuing operations due to current OCI gains with a partial offsetting amount recognized in OCI. The following table details the effects of our intraperiod tax allocations for the three and nine months ended September 30, 2012 and 2011 (in millions):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2012 |  | 2011 |  | 2012 |  | 2011
Intraperiod tax allocation expense included in continuing operations | $ | 3 |  |  | $ | 36 |  |  | $ | 7 |  |  | $ | 20 |
Intraperiod tax allocation benefit included in OCI | $ | (3 | ) |  | $ | (34 | ) |  | $ | (7 | ) |  | $ | (18 | )
NOL Carryforwards — Under federal income tax law, our NOL carryforwards can be utilized to reduce future taxable income subject to certain limitations, including if we were to undergo an ownership change as defined by Section 382 of the IRC. We experienced an ownership change on the Effective Date as a result of the cancellation of our old common stock and the distribution of our new common stock pursuant to our Plan of Reorganization. However, this ownership change and the resulting annual limitations are not expected to result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable income within the carryforward periods. When considering our cumulative annual Section 382 limitations, in addition to our post-Effective Date NOLs that are not limited, our total unrestricted NOLs were approximately $6.3 billion at December 31, 2011. If a subsequent ownership change were to occur as a result of future transactions in our common stock, accompanied by a significant reduction in our market value immediately prior to the ownership change, our ability to utilize the NOL carryforwards may be significantly limited. Under state income tax laws, our NOL carryforwards can be utilized to reduce future taxable income subject to certain limitations, including if we were to undergo an ownership change as defined by Section 382 of the IRC. During 2011, we analyzed the effect of our change in ownership on the Effective Date for each of our significant states to determine the amount of our NOL limitation. The analysis determined that $640 million of our state NOLs are expected to expire unutilized as a result of statutory limitations on the use of some of our pre-emergence date NOLs as of the Effective Date or the cessation of business operations in various tax jurisdictions. We reduced our deferred tax asset for state NOLs that we are unable to utilize and made an equal reduction in our valuation allowance in 2011. The result did not have an impact on our income tax expense in 2011. As we had estimated, approximately $50 million of our state NOLs are expected to expire unutilized during 2012 as a result of statutory state limitations relating to the time period NOLs can be carried forward, and accordingly, we reduced our deferred tax asset and made an equal reduction in our valuation allowance. The reduction did not have an impact to our income tax expense in 2012. We will likely make future annual adjustments to our state NOLs that have expired or are limited under Section 382 of the IRC. To manage the risk of significant limitations on our ability to utilize our tax NOL carryforwards, our amended and restated certificate of incorporation requires our Board of Directors to meet to determine whether to impose certain transfer restrictions on our common stock if, prior to February 1, 2013, our Market Capitalization declines by at least 35% from our Emergence Date Market Capitalization of approximately $8.6 billion (in each case, as defined in and calculated pursuant to our amended and restated certificate of incorporation) and at least 25 percentage points of shift in ownership has occurred with respect to our equity for purposes of Section 382 of the IRC. We believe as of the filing of this Report, an ownership change exceeding 25 percentage points has occurred; however, we have not experienced declines in our stock price of more than 35% from our Emergence Date Market Capitalization. Accordingly, the transfer restrictions have not been put in place by our Board of Directors; however, if both of the foregoing events were to occur together and our Board of Directors was to elect to impose them, they could become operative in the future. There can be no assurance that the circumstances will not be met in the future, or in the event that they are met, that our Board of Directors would choose to impose these restrictions or that, if imposed, such restrictions would prevent an ownership change from occurring. Unless extended by a vote of the shareholders, the ability of the Board of Directors to impose transfer restrictions on our common stock terminates on January 31, 2013. Should our Board of Directors elect to impose these restrictions, it will have the authority and discretion to determine and establish the definitive terms of the transfer restrictions, provided that the transfer restrictions apply to purchases by owners of 5% or more of our common stock, including any owners who would become owners of 5% or more of our common stock via such purchase. The transfer restrictions will not apply to the disposition of shares provided they are not purchased by a 5% or more owner. Income Tax Audits — We remain subject to various audits and reviews by taxing authorities; however, we do not expect these will have a material effect on our tax provision. Any NOLs we claim in future years to reduce taxable income could be subject to U.S. Internal Revenue Service examination regardless of when the NOLs occurred. Due to significant NOLs, any adjustment of state returns or federal returns from 2007 and forward would likely result in a reduction of deferred tax assets rather than a cash payment of income taxes. Canadian Tax Audits — In September 2009, we received notice from the Canadian Revenue Authority, or CRA, of their intent to conduct a limited scope income tax audit on four of our Canadian subsidiaries for the tax years 2005 through 2008. The CRA concluded that there were no adjustments on two of the entities, but further review was required on the remaining two subsidiaries. On April 23, 2012, the remaining two subsidiaries received proposed adjustments from the CRA regarding our tax transfer pricing positions. On June 21, 2012, we met with the CRA to discuss their proposed adjustments and provide clarification where we believed it was needed. In July 2012, we received additional questions from the CRA as a result of our meeting, and we responded to their request in September and October 2012. We continue to evaluate the proposed adjustments; however, based on our preliminary analysis, we believe that our transfer pricing tax positions and policies are appropriate, and we intend to challenge the CRA's proposed adjustments. If we are unsuccessful in our challenge, any adjustment to Canadian taxable income would first be offset against any existing NOLs that are available; however, we do not believe any reassessment resulting in an adjustment to taxable income which is greater than our existing NOLs, or including interest or penalties which cannot be offset by existing NOLs, would have a material adverse effect on our financial condition, results of operations or cash flows. Valuation Allowance — U.S. GAAP requires that we consider all available evidence, both positive and negative, and tax planning strategies to determine whether, based on the weight of that evidence, a valuation allowance is needed to reduce the value of deferred tax assets. Future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback or carryforward periods available under the tax law. Due to our history of losses, we were unable to assume future profits; however, since our emergence from Chapter 11, we are able to consider available tax planning strategies. Unrecognized Tax Benefits — At September 30, 2012, we had unrecognized tax benefits of $92 million. If recognized, $47 million of our unrecognized tax benefits could impact the annual effective tax rate and $45 million, related to deferred tax assets, could be offset against the recorded valuation allowance resulting in no impact to our effective tax rate. We also had accrued interest and penalties of $23 million for income tax matters at September 30, 2012. We recognize interest and penalties related to unrecognized tax benefits in income tax expense (benefit) on our Consolidated Condensed Statements of Operations. The amount of unrecognized tax benefits at September 30, 2012 increased by $18 million from December 31, 2011 primarily related to prior year tax positions. We believe it is reasonably possible that a decrease within the range of approximately nil and $23 million in unrecognized tax benefits could occur within the next 12 months primarily related to state and foreign tax issues. U.S. Federal Income Tax Refund — In 2004, we deducted a portion of our foreign dividends as allowed by the IRC when we filed our federal income tax return. Upon further review and analysis, we determined our foreign dividends should have been offset against our current 2004 operating loss. In 2009, we filed an amended federal income tax return that reflected this change and would result in a refund of approximately $10 million. This amended federal return has been under audit by the U.S. Internal Revenue Service since it was filed. In October 2012, the U.S. Internal Revenue Service approved our amended tax return and we received a refund of approximately $13 million which included approximately $3 million in accrued interest. The benefit of this refund will be reflected in our financial statements in the fourth quarter of 2012.

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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 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 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=6881521&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 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: 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 6: 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 7: 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 8: 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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