QWEST CORPCTBB
QWEST CORP Income Taxes Disclosure
Note 13—Income Taxes
The components of the Income tax expense from continuing operations are as follows:
| Year Ended December 31, | |||||
| 2025 | |||||
| (Dollars in millions) | |||||
| Loss (income) before income taxes | |||||
| Domestic | $ | (987) | |||
| Foreign | 12 | ||||
| Total pre-tax book loss | $ | (975) | |||
| Income tax expense | |||||
| Current tax expense | |||||
| Federal | $ | 181 | |||
| State and Local | 40 | ||||
| Foreign | 6 | ||||
| Total current tax expense | 227 | ||||
| Deferred tax expenses | |||||
| Federal | 104 | ||||
| State and Local | 21 | ||||
| Total deferred tax expense | 125 | ||||
| Income tax expense | |||||
| Federal | 285 | ||||
| State and Local | 61 | ||||
| Foreign | 6 | ||||
| Total income tax expense | $ | 352 | |||
Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
(Dollars in millions) | |||||||||||
| Income tax expense: | |||||||||||
| Federal and foreign | |||||||||||
| Current | $ | 396 | 432 | ||||||||
| Deferred | 34 | 19 | |||||||||
| State and local | |||||||||||
| Current | 94 | 107 | |||||||||
| Deferred | 3 | 3 | |||||||||
| Income tax expense | $ | 527 | 561 | ||||||||
The following is a reconciliation from the statutory federal income tax rate to our effective income tax rate:
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
(Dollars in millions) | Percentage of pre-tax loss | ||||||||||
| Statutory federal income tax rate | $ | (205) | 21.0 | % | |||||||
| Federal | |||||||||||
| Effect of cross-border tax laws | |||||||||||
| Other | (1) | 0.1 | % | ||||||||
| Tax Credits | |||||||||||
| Other | — | — | % | ||||||||
| Changes in valuation allowance | — | — | % | ||||||||
| Nontaxable or nondeductible items | |||||||||||
| Goodwill impairment | 421 | (43.2) | % | ||||||||
| Loss on disposal group held for sale (Note 3) | 50 | (5.1) | % | ||||||||
| Other | (1) | 0.1 | % | ||||||||
State income taxes, net of federal income tax benefit(1) | 47 | (4.8) | % | ||||||||
| Change in liability for unrecognized tax position | 25 | (2.6) | % | ||||||||
| Foreign tax effect | |||||||||||
| India | |||||||||||
Deferred tax on unremitted earnings | 13 | (1.3) | % | ||||||||
| Other | 3 | (0.3) | % | ||||||||
| Effective income tax rate | $ | 352 | (36.1) | % | |||||||
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(1)During the year ended December 31, 2025, state taxes in Minnesota, Colorado and Arizona comprised greater than 50% of the tax effect in this category.
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (Percentage of pre-tax income) | |||||||||||
| Effective income tax rate: | |||||||||||
| Federal statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| State income taxes-net of federal effect | 3.7 | % | (31.3) | % | |||||||
Goodwill impairment | — | % | (187.2) | % | |||||||
Change in liability for unrecognized tax position | 1.5 | % | (8.9) | % | |||||||
| Other | — | % | (1.4) | % | |||||||
| Effective income tax rate | 26.2 | % | (207.8) | % | |||||||
The effective tax rate for 2025 and 2023 includes $421 million and $505 million, respectively, of unfavorable impact of non-deductible goodwill impairment.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:
December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
| Deferred tax liabilities: | |||||||||||
| Property, plant and equipment | $ | (1,623) | (1,524) | ||||||||
| Intangible assets | (90) | (83) | |||||||||
| Other | (52) | (40) | |||||||||
| Total deferred tax liabilities | (1,765) | (1,647) | |||||||||
| Deferred tax assets: | |||||||||||
| Payable to affiliate due to post-retirement benefit plan participation | 306 | 312 | |||||||||
| Other | — | 1 | |||||||||
| Gross deferred tax assets | 306 | 313 | |||||||||
| Net deferred tax assets | 306 | 313 | |||||||||
| Net deferred tax liabilities | $ | (1,459) | (1,334) | ||||||||
As of December 31, 2025, we have determined that a portion of our undistributed earnings in India are no longer permanently reinvested, resulting in the recognition of an immaterial deferred tax liability. We continue to assert that undistributed earnings of our subsidiaries in all other foreign jurisdictions are indefinitely reinvested.
As of both December 31, 2025 and 2024, we had no established valuation allowance based on our assessment of whether it is more likely than not that our deferred tax assets will be realized.
As of December 31, 2025 and 2024, the $1.5 billion and $1.3 billion, respectively, net deferred tax liabilities are included in long-term liabilities on our consolidated balance sheet.
Income taxes paid, net are as follows:
Year Ended December 31, | |||||
| 2025 | |||||
| (Dollars in millions) | |||||
| Federal | $ | 154 | |||
| State | 39 | ||||
| Foreign | 6 | ||||
Total income taxes paid, net(1) | $ | 199 | |||
(1)During the year ended December 31, 2025, there were no individual jurisdictions with cash taxes paid that equaled or exceeded 5% of the total income taxes paid.
With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2016. The Internal Revenue Service and state and local taxing authorities reserve the right to audit any period where net operating loss carryforwards are available.
A reconciliation of the change in our gross unrecognized tax benefits (excluding both interest and any related federal benefit) for the years ended December 31, 2025 and 2024 are as follows:
| Years ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
| Unrecognized tax benefits at beginning of period | $ | 293 | 317 | ||||||||
| Increase (decrease) due to tax positions taken in a prior year | 1 | (11) | |||||||||
| Decrease due to tax positions taken in a current year | (4) | (13) | |||||||||
| Unrecognized tax benefits at end of period | $ | 290 | 293 | ||||||||
As of December 31, 2025, the total amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate is $5 million. The unrecognized tax benefits also includes tax positions that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes, that would not impact the effective tax rate but could impact cash tax amounts payable to taxing authorities.
Our policy is to reflect interest expense associated with unrecognized tax benefits in income tax expense. We had accrued interest (presented before related tax benefits) of approximately $192 million and $160 million as of December 31, 2025 and 2024, respectively.
Based on our current assessment of various factors, including (i) the potential outcomes of these ongoing examinations, (ii) the expiration of statute of limitations for specific jurisdictions, (iii) the negotiated settlement of certain disputed issues, and (iv) the administrative practices of applicable taxing jurisdictions, it is reasonably possible that the related unrecognized tax benefits for uncertain tax positions previously taken may not change in the next 12 months. The actual amount of changes, if any, will depend on future developments and events, many of which are outside our control.
We paid $199 million, $497 million, and $509 million related to income taxes for the years ended December 31, 2025, 2024, and 2023, respectively.
The OECD has issued Pillar Two model rules introducing a new global minimum corporate tax of 15% for tax years effective after December 31, 2023. While the U.S. has not adopted Pillar Two legislation, certain countries in which we operate have already adopted legislation to implement Pillar Two. On January 5, 2026, the OECD announced the Side-by-Side ("SbS") package, implemented as administrative guidance modifying the operation of Pillar Two rules, which would fully exempt U.S.-parented groups from the application certain Pillar Two top-up taxes. The SbS package also extends the current Transitional Country-by-Country Reporting ("CbCR") Safe Harbor by one year, through the end of fiscal year of 2027. The Pillar Two rules have increased our compliance requirements but did not materially impact our 2025 results. We continue to monitor evolving global and domestic tax legislation and administrative guidance.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Mar 3, 2021 | |
| 2019 | Mar 5, 2020 | |
| 2018 | Mar 22, 2019 | |
| 2017 | Mar 12, 2018 | |
| 2016 | Mar 2, 2017 | |
| 2015 | Mar 1, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.