6.  INCOME TAXES 

The (benefit from) provision for income taxes for (loss) income from continuing operations consists of the following (in millions):





The following table reconciles the differences between the statutory federal income tax rate and the effective tax rate (dollars in millions):





The Company’s effective tax rates were 15.8%,  6.1% and 28.4% for the years ended December 31, 2017, 2016 and 2015, respectively. Including the net income attributable to noncontrolling interests, which is not tax effected in the consolidated statement of (loss) income, the effective tax rate for the years ended December 31, 2017, 2016 and 2015 would have been 15.5%,  5.7% and 37.6% respectively. This increase in the Company’s effective tax rate for the year ended December 31, 2017, when compared to the year ended December 31, 2016, was primarily due to the difference between the non-deductible nature of certain goodwill written off in those years. The decrease in the Company’s effective tax rate for the year ended December 31, 2016, when compared to the year ended December 31, 2015, was primarily due to the non-deductible nature of goodwill written off for impairment and divestitures, as well as the non-deductible nature of certain costs incurred to complete the spin-off of QHC.

Deferred income taxes are based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities under the provisions of the enacted tax laws. Deferred income taxes as of December 31, 2017 and 2016 consist of (in millions):





The Company believes that the net deferred tax assets will ultimately be realized, except as noted below. Its conclusion is based on its estimate of future taxable income and the expected timing of temporary difference reversals. The Company has gross federal net operating loss carryforwards of approximately $610 million and state net operating loss carryforwards of approximately $6.3 billion, which expire from 2018 to 2037. The Company’s tax affected federal and state net operating loss and credit carryforwards which it expects to be able to utilize are approximately $136 million and $16 million, respectively. A valuation allowance of approximately $489 million has been recognized for state net operating loss carryforwards, credit carryforwards and deferred tax assets that the Company does not expect to be able to utilize prior to the expiration of the carryforward period. The Company also has unrecognized deferred tax assets primarily related to interest expense that are included in other comprehensive income. If recognized, additional state net operating losses will be created which the Company does not expect to be able to utilize prior to the expiration of the carryforward period. A valuation allowance of approximately $2 million has been recognized for those items. With respect to the deferred tax liability pertaining to intangibles, as included above, goodwill purchased in connection with certain of the Company’s business acquisitions is amortizable for income tax reporting purposes. However, for financial reporting purposes, there is no corresponding amortization allowed with respect to such purchased goodwill.

The valuation allowance increased by $104 million and $49 million during the years ended December 31, 2017 and 2016, respectively, for losses incurred in certain state jurisdictions where the Company concluded associated deferred tax assets would not be realized.



On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code which impacted 2017, including a permanent reduction in the U.S. federal corporate tax rate from 35% to 21% (“Rate Reduction”).



The Tax Act also puts into place new tax laws that will apply prospectively, which include, but are not limited to (1) creating a new limitation on deductible interest expense; (2) changing rules related to uses and limitations of net operating loss carryforwards: and (3) modifying the rules governing the deductibility of certain executive compensation.



The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.



The Company has not completed the accounting for the income tax effects of the Tax Act. At December 31, 2017, the Company recorded a discrete net tax expense of $32 million primarily related to provisional amounts under SAB 118 for the remeasurement of U.S. deferred tax assets and liabilities due to Rate Reduction. No additional provisional amounts were recorded as part of the Company’s initial accounting for the Tax Act. However, these estimates may differ from the final accounting due to, among other things, future clarification and guidance to be issued, changes in interpretations the Company has made and state tax conformity to federal tax changes. Such changes in estimate could impact the recorded U.S. federal and state deferred tax assets and liabilities as well as valuation allowances in those jurisdictions.



At December 31, 2017, the Company was not able to reasonably estimate and, therefore, has not recorded a provisional amount for the Tax Act’s impact on certain state valuation allowances. The Company will record a provisional amount in the first reporting period in which a reasonable estimate can be determined. Such timing will depend upon the Company’s ability to obtain, prepare and analyze the necessary information to determine whether a valuation allowance needs to be recognized.

The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was approximately $7 million as of December 31, 2017. A total of approximately $4 million of interest and penalties is included in the amount of the liability for uncertain tax positions at December 31, 2017. It is the Company’s policy to recognize interest and penalties related to unrecognized benefits in its consolidated statements of (loss) income as income tax expense.

It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and settlements with taxing authorities; however, the Company does not anticipate the change will have a material impact on the Company’s consolidated results of operations or consolidated financial position.

The following is a tabular reconciliation of the total amount of unrecognized tax benefit for the years ended December 31, 2017, 2016 and 2015 (in millions):





The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to state income tax examinations for years prior to 2013. The Company’s federal income tax returns for the 2009 and 2010 tax years are currently under examination by the Internal Revenue Service. The Company believes the results of these examinations will not be material to its consolidated results of operations or consolidated financial position. The Company has extended the federal statute of limitations through December 31, 2018 for Community Health Systems, Inc. for the tax periods ended December 31, 2007, 2008, 2009 and 2010 and through September 6, 2019 for the tax period ended December 31, 2014.

Cash paid for income taxes, net of refunds received, resulted in net cash paid of $4 million and $12 million during the years ended December 31, 2017 and 2015, respectively, and net cash refund of $16 million for the year ended December 31, 2016.