NOTE 4 — INCOME TAXES
The provision for income taxes consists of the following (dollars in millions):
| 2013 | 2012 | 2011 | ||||||||||
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Current: |
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Federal |
$ | 827 | $ | 604 | $ | (119 | ) | |||||
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State |
86 | 58 | (12 | ) | ||||||||
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Foreign |
44 | 43 | 44 | |||||||||
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Deferred: |
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Federal |
(53 | ) | 167 | 714 | ||||||||
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State |
20 | (8 | ) | 71 | ||||||||
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Foreign |
26 | 24 | 21 | |||||||||
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| $ | 950 | $ | 888 | $ | 719 | |||||||
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The provision for income taxes reflects $4 million, $53 million and $100 million ($3 million, $33 million and $63 million net of tax, respectively) reductions in interest related to taxing authority examinations for the years ended December 31, 2013, 2012 and 2011, respectively. Our foreign income before income taxes was $187 million, $178 million and $173 million for the years ended December 31, 2013, 2012 and 2011, respectively.
A reconciliation of the federal statutory rate to the effective income tax rate follows:
| 2013 | 2012 | 2011 | ||||||||||
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Federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
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State income taxes, net of federal tax benefit |
2.3 | 2.2 | 2.0 | |||||||||
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Change in liability for uncertain tax positions |
0.5 | — | 1.0 | |||||||||
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Nontaxable gain on acquisition of controlling interest in equity investment |
— | — | (13.8 | ) | ||||||||
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Tax exempt interest income |
(0.2 | ) | (0.2 | ) | (0.2 | ) | ||||||
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Other items, net |
0.3 | (1.4 | ) | (1.4 | ) | |||||||
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Effective income tax rate on income applicable to HCA Holdings, Inc. |
37.9 | 35.6 | 22.6 | |||||||||
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Income attributable to noncontrolling interests from consolidated partnerships |
(5.7 | ) | (4.9 | ) | (2.4 | ) | ||||||
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Effective income tax rate on income before income taxes |
32.2 | % | 30.7 | % | 20.2 | % | ||||||
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A summary of the items comprising the deferred tax assets and liabilities at December 31 follows (dollars in millions):
| 2013 | 2012 | |||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
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Depreciation and fixed asset basis differences |
$ | — | $ | 229 | $ | — | $ | 292 | ||||||||
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Allowances for professional liability and other risks |
365 | — | 355 | — | ||||||||||||
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Accounts receivable |
423 | — | 405 | — | ||||||||||||
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Compensation |
240 | — | 237 | — | ||||||||||||
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Other |
638 | 698 | 744 | 595 | ||||||||||||
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| $ | 1,666 | $ | 927 | $ | 1,741 | $ | 887 | |||||||||
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At December 31, 2013, state net operating loss carryforwards (expiring in years 2014 through 2033) available to offset future taxable income approximated $17 million. Utilization of net operating loss carryforwards in any one year may be limited. Net deferred tax assets related to such carryforwards are not significant.
We expect the IRS Examination Division will begin an audit of HCA Holdings, Inc.’s 2011 federal income tax return in 2014.
The following table summarizes the activity related to our unrecognized tax benefits (dollars in millions):
| 2013 | 2012 | |||||||
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Balance at January 1 |
$ | 425 | $ | 445 | ||||
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Additions based on tax positions related to the current year |
21 | 16 | ||||||
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Additions for tax positions of prior years |
25 | 92 | ||||||
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Reductions for tax positions of prior years |
(18 | ) | (19 | ) | ||||
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Settlements |
(5 | ) | (103 | ) | ||||
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Lapse of applicable statutes of limitations |
(3 | ) | (6 | ) | ||||
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Balance at December 31 |
$ | 445 | $ | 425 | ||||
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During 2013, we finalized settlements with the IRS resolving all outstanding issues for HCA Inc.’s 2007, 2008 and 2009 tax years. During 2012, we finalized settlements with the IRS for our 2005 and 2006 tax years resolving all outstanding issues, including the timing of recognition of certain patient service revenues, the deductibility of certain debt retirement costs and our method for calculating the tax allowance for doubtful accounts.
Our liability for unrecognized tax benefits was $462 million, including accrued interest of $30 million and excluding $13 million that was recorded as reductions of the related deferred tax assets, as of December 31, 2013 ($426 million, $14 million and $13 million, respectively, as of December 31, 2012). Unrecognized tax benefits of $160 million ($125 million as of December 31, 2012) would affect the effective rate, if recognized.
Depending on the resolution of any IRS disputes, the completion of examinations by federal, state or international taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease within the next 12 months. However, we are currently unable to estimate the range of any possible change.