Policy

Domestic and foreign income before income taxes and discontinued operations are as follows (millions):

Current and Deferred income taxes (tax benefits) provided on Income from continuing operations are as follows (millions):

	Year Ended December 31,
	2013		2012		2011
Federal:
Current	$	617	$	1,195	$	922
Deferred		808		(135)		171
Foreign:
Current^(a)		352		358		364
Deferred		(27)		4		(52)
State and Local:
Current		21		123		63
Deferred		(22)		(19)		9
Total^(b)	$	1,749	$	1,526	$	1,477
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(a) Includes foreign withholding taxes of $274 million in 2013, $245 million in 2012 and $244 million in 2011.

(b) Excludes excess tax benefits from equity awards allocated directly to contributed capital of $179 million in 2013, $83 million in 2012 and $22 million in 2011.

The differences between income taxes expected at the U.S. federal statutory income tax rate of 35% and income taxes provided are as set forth below (millions):

	Year Ended December 31,
	2013		2012		2011

Taxes on income at U.S. federal statutory rate	$	1,856	$	1,557	$	1,526
State and local taxes, net of federal tax effects		92		65		71
Domestic production activities deduction………………………………		(142)		(160)		(123)
Other		(57)		64		3
Total	$	1,749	$	1,526	$	1,477

Significant components of Time Warner's net deferred tax liabilities are as follows (millions):

	December 31,
	2013		2012
Deferred tax assets:
Tax attribute carryforwards^(a)	$	1,074	$	835
Receivable allowances and return reserves		239		244
Royalties, participations and residuals		453		474
Investments		181		170
Equity-based compensation		243		280
Amortization and depreciation		-		373
Other		750		1,087
Valuation allowances^(a)		(564)		(560)
Total deferred tax assets	$	2,376	$	2,903

Deferred tax liabilities:
Amortization and depreciation	$	45	$	-
Assets acquired in business combinations		3,350		3,521
Unbilled television receivables		941		915
Unremitted earnings of foreign subsidiaries		235		120
Total deferred tax liabilities		4,571		4,556
Net deferred tax liability	$	2,195	$	1,653
_____________

(a) The Company has recorded valuation allowances for certain tax attribute carryforwards and other deferred tax assets due to uncertainty that exists regarding future realizability. The tax attribute carryforwards consist of $610 million of tax credits, $186 million of capital losses and $278 million of net operating losses that expire in varying amounts from 2014 through 2033. If, in the future, the Company believes that it is more likely than not that these deferred tax benefits will be realized, the majority of the valuation allowances will be recognized in the Consolidated Statement of Operations.

U.S. income and foreign withholding taxes have not been recorded on permanently reinvested earnings of certain foreign subsidiaries aggregating approximately $1 billion at December 31, 2013. Determination of the amount of unrecognized deferred U.S. income tax liability with respect to such earnings is not practicable.

For accounting purposes, the Company records equity-based compensation expense and a related deferred tax asset for the future tax deductions it may receive. For income tax purposes, the Company receives a tax deduction equal to the stock price on the date that a restricted stock unit (or performance share unit) vests or the excess of the stock price over the exercise price of an option upon exercise. The deferred tax asset consists of amounts relating to individual unvested and/or unexercised equity-based compensation awards; accordingly, deferred tax assets related to certain equity awards may currently be in excess of the tax benefit ultimately received. The applicable accounting rules require that the deferred tax asset related to an equity-based compensation award be reduced only at the time the award vests (in the case of a restricted stock unit or performance share unit), is exercised (in the case of a stock option) or otherwise expires or is cancelled. This reduction is recorded as an adjustment to additional paid-in capital (“APIC”), to the extent that the realization of excess tax deductions on prior equity-based compensation awards were recorded directly to APIC. The cumulative amount of such excess tax deductions is referred to as the Company's “APIC Pool.” Any shortfall balance recognized in excess of the Company's APIC Pool is charged to Income tax provision in the Consolidated Statement of Operations. The Company's APIC Pool was sufficient to absorb any shortfalls such that no shortfalls were charged to the Income tax provision during the years ended December 31, 2013, 2012 and 2011.

The Company recognizes income tax benefits for tax positions determined more likely than not to be sustained upon examination, based on the technical merits of the positions.

Changes in the Company's uncertain income tax positions, excluding the related accrual for interest and penalties, from January 1 through December 31 are set forth below (millions):

	Year Ended December 31,
	2013		2012		2011

Beginning balance	$	2,222	$	2,122	$	2,100
Additions for prior year tax positions		124		102		88
Additions for current year tax positions		79		97		120
Reductions for prior year tax positions		(144)		(61)		(153)
Settlements		(84)		(26)		(15)
Lapses in statute of limitations		(11)		(12)		(18)
Ending balance	$	2,186	$	2,222	$	2,122

Should the Company's position with respect to these uncertain tax positions be upheld, the significant majority of the effect would be recorded in the Consolidated Statement of Operations as part of the Income tax provision.

During the year ended December 31, 2013, the Company recorded interest reserves in the Consolidated Statement of Operations of approximately $34 million and made interest payments in connection with settlements reached during 2013 of approximately $38 million. During the year ended December 31, 2012, the Company recorded interest reserves in the Consolidated Statement of Operations of approximately $59 million and made interest payments in connection with settlements reached during 2012 of approximately $21 million. The amount accrued for interest and penalties as of December 31, 2013 and 2012 was $421 million and $425 million, respectively. The Company's policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax expense.

In the Company's judgment, uncertainties related to certain tax matters are reasonably possible of being resolved during the next twelve months. The effect of the resolutions of these matters, a portion of which could vary based on the final terms and timing of actual settlements with taxing authorities, is estimated to be a reduction of recorded unrecognized tax benefits ranging from $0 million to $650 million, most of which would lower the Company's effective tax rate. The Company does not otherwise currently anticipate that its reserves related to uncertain income tax positions as of December 31, 2013 will significantly increase or decrease during the twelve-month period ended December 31, 2014; however, various events could cause the Company's current expectations to change in the future.

The Company and its subsidiaries file income tax returns in the U.S. and various state and local and foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently conducting an examination of the Company's U.S. income tax returns for the 2005 through 2007 period.

The Company has filed a petition with the Tax Court on a matter relating to the appropriate tax characterization of certain stock warrants received from a third party in 2002. Should the IRS prevail, the additional tax payable by the Company would be approximately $70 million.

As of December 31, 2013, the tax years that remain subject to examination by significant jurisdiction are as follows:

	U.S. federal		2002 through the current period
	California		2007 through the current period
	New York State		2009 through the current period
	New York City		2009 through the current period

TIME WARNER INC. | 2013 | FY |

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