16. Income Taxes

        The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse. Additionally, the impact of changes in the tax rates and laws on deferred taxes, if any, is reflected in the financial statements in the period of enactment.

        As a result of the Restructuring, WOW Finance became a single member LLC for federal income tax purposes. The Restructuring is treated as a change in tax status related to WOW Finance, since a single member LLC is required to record current and deferred income taxes reflecting the results of its operations.

        The components of the Company's deferred tax assets and deferred tax liabilities as of December 31, 2017 and December 31, 2016 are presented in the table below:

                                                                                                                                                                                    

        The Company assesses the available positive and negative evidence to estimate whether sufficient taxable income will be generated to permit the utilization of existing deferred tax assets. On the basis of this evaluation, as of December 31, 2017, a valuation allowance of $65.0 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The valuation allowance is based on the Company's existing positive and negative evidence. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased based on the Company's future operating results.

        The income tax benefit (expense) from continuing operations consisted of the following for the years ended December 31, 2017, 2016 and 2015:

                                                                                                                                                                                    

        A reconciliation of the income tax provision computed at statutory tax rates to the income tax provision for the years ended December 31, 2017, 2016 and 2015 are as follows:

                                                                                                                                                                                    

        The Company reported total income tax benefit of $132.5 million, $27.3 million and expense of $9.9 million during the fiscal years ended December 31, 2017, 2016 and 2015, respectively. The Corporate Tax Reform relates to the passing of the Tax Cut and Jobs Act, which was signed by the President on December 22, 2017, made significant changes to the tax laws applicable to the Company including a reduction in the corporate tax rate to 21%. Re-measuring the ending balance of our deferred tax assets and deferred tax liabilities to the new corporate tax rate of 21% resulted in a deferred tax benefit of $79.4 million. The $99.3 million change in valuation allowance is comprised of an additional deferred tax benefit of $25.2 million as a result of re-measuring to 21% and a $74.1 million deferred tax benefit related to current period activity. In total the re-measurement resulting from the reduction in the corporate tax rate to 21% is $104.6 million.

        The tax status change is related to the Restructuring and resulted in a deferred tax expense of $57.7 million during the fiscal year ended December 31, 2016. The $57.7 million consisted of $138.9 million in additional deferred tax liabilities that were required as a result of the change in tax status, $14.1 million in additional deferred tax liabilities that were recorded due to state income tax rate impacts and a deferred tax benefit of $95.3 million related to the removal of existing deferred tax liabilities attributable to the Company's investment in C corporation subsidiaries. In addition, as a result of the Company's change in tax status, the Company recorded a deferred tax benefit of $103.6 million due to a reversal of a portion of its existing valuation allowance.

        As of December 31, 2017, the Company had available federal net operating loss carryforwards of approximately $649.0 million that expire between 2023 and 2036. The net operation loss carryforward of $649.0 million is subject to an annual utilization limitation under Internal Revenue Code ("IRC") Section 382 due to an ownership change as a result of the IPO (effective May 25, 2017). Section 382 provides limitations on the utilization of NOL carryforwards after an ownership change and the Company has analyzed the potential Section 382 impacts on our NOL carryforwards. The Company has analyzed the potential Section 382 limitation on its net operating loss carryforwards and determined that, although $649.0 million of this carryforward is subject to an annual Section 382 limitation, based on the fair market value of WOW at the time of the IPO and WOW's net unrealized built-in gain ("NUBIG") position, the NUBIG has resulted in a significant increase in the Company's annual Section 382 limitation. The NUBIG is determined based on the difference between the fair market value of WOW's assets and WOW's tax basis as of the ownership change date. Because of the existence of the NUBIG, the annual limitation imposed by Section 382 was significantly increased each year during the five-year period beginning on the date of the Section 382 ownership change (the "recognition period"). The increased annual limitation arising from the NUBIG is available on a cumulative basis during and after the recognition period following the Section 382 ownership change to offset taxable income. Accordingly, the Company expects that the Section 382 limitation relating to the $649.0 million of available net operating loss carryforwards will not result in any significant impacts on the Company's ability to utilize its net operating loss carryforwards to offset future taxable income nor will the Section 382 limitation have significant impact on future operating cash flows. The generation of NOLs subsequent to December 31, 2017 are subject to the Tax Cut and Jobs Act, which removes NOL expirations, but limits utilization against taxable income to 80%.

        The Company also had various state net operating loss carryforwards totaling approximately $717.6 million. Unless utilized, the state carryforwards expire from 2018 to 2036. Of this amount, approximately $674.2 million is subject to an annual limitation due to an ownership change of the Company, as previously noted.

        The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

                                                                                                                                                                                    

        As of December 31, 2017 the Company recorded gross unrecognized tax benefits of $25.5 million, all of which, if recognized, would affect the Company's effective tax rate. Interest and penalties related to income tax liabilities, if incurred, are included in income tax expense in the consolidated statement of operations. The Company has accrued gross interest of $1.4 million, $0.4 million, and $nil for years ended December 31, 2017, 2016 and 2015, respectively. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues are addressed in the Company's tax audits in a manner not consistent with management's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

        The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. For federal tax purposes, the Company's 2014 through 2016 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. Generally, for state tax purposes, the Company's 2014 through 2016 tax years remain open for examination by the tax authorities under a three year statute of limitations. Should the Company utilize any of its U.S. or state loss carryforwards, their carryforward losses, which date back to 1995, would be subject to examination.

        Unrecognized tax benefits consist primarily of tax positions related to the internal Restructuring, issues related to acquisition activity and various state income tax matters. Depending on the resolution with certain state taxing authorities that is expected to occur within the next twelve months, there could be a $4.7 million adjustment to the Company's unrecognized tax benefits.

        The Company is not currently under examination for U.S. federal income tax purposes, but does have open tax controversy matters with various state taxing authorities.