Verizon Communications Inc. (VZ)

Income Tax Accounting Policy

Effective tax rate is based on pre-tax income, statutory tax rates, tax laws and regulations and tax planning strategies available to Verizon in the various jurisdictions in which Verizon operates.

Deferred income taxes are provided for temporary differences in the bases between financial statement and income tax assets and liabilities. Deferred income taxes are recalculated annually at tax rates then in effect. Verizon records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized.

Verizon uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The first step is recognition: Verizon determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, Verizon presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability.

The accounting standard relating to income taxes generated by leveraged lease transactions requires that changes in the projected timing of income tax cash flows generated by a leveraged lease transaction be recognized as a gain or loss in the year in which the change occurs.

Significant management judgment is required in evaluating Verizon's tax positions and in determining effective tax rate.

Source: Verizon Communications Inc., Annual Report

Income Tax Expense (Benefit)

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Verizon Communications Inc., income tax expense (benefit), continuing operations

USD $ in millions

	12 months ended	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008
	Federal
	Foreign
	State and local
	Current
	Federal
	Foreign
	State and local
	Deferred
	Investment tax credits
	Income tax provision (benefit)

Source: Based on data from Verizon Communications Inc. Annual Reports

Item	Description	The company
Current	The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations.	Verizon Communications Inc.'s current increased from 2010 to 2011 but then slightly declined from 2011 to 2012.
Deferred	The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations.	Verizon Communications Inc.'s deferred declined from 2010 to 2011 and from 2011 to 2012.
Income tax provision (benefit)	The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy.	Verizon Communications Inc.'s income tax provision (benefit) declined from 2010 to 2011 and from 2011 to 2012.

Effective Income Tax Rate (EITR)

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Verizon Communications Inc., effective income tax rate (EITR) reconciliation

	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008
Statutory federal income tax rate	%	%	%	%	%
State and local income tax rate, net of federal tax benefits	%	%	%	%	%
Affordable housing credit	%	%	%	%	%
Employee benefits including ESOP dividend	%	%	%	%	%
Distributions from foreign investments	%	%	%	%	%
Medicare Part D subsidy charge	%	%	%	%	%
Equity in earnings from unconsolidated businesses	%	%	%	%	%
Noncontrolling interest	%	%	%	%	%
Other, net	%	%	%	%	%
Effective income tax rate	%	%	%	%	%

Source: Based on data from Verizon Communications Inc. Annual Reports

Item	Description	The company
Effective income tax rate	A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations.	Verizon Communications Inc.'s effective income tax rate declined from 2010 to 2011 and from 2011 to 2012.

Components of Deferred Tax Assets and Liabilities

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Verizon Communications Inc., components of deferred tax assets and liabilities

USD $ in millions

		Dec 31, 2012	Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008
	Employee benefits
	Tax loss and credit carry forwards
	Uncollectible accounts receivable
	Other, assets
	Gross deferred tax assets
	Valuation allowances
	Deferred tax assets
	Former MCI intercompany accounts receivable basis difference
	Depreciation
	Leasing activity
	Wireless joint venture including wireless licenses
	Other, liabilities
	Deferred tax liabilities
	Net deferred tax assets (liability)

Source: Based on data from Verizon Communications Inc. Annual Reports

Item	Description	The company
Gross deferred tax assets	The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies.	Verizon Communications Inc.'s gross deferred tax assets increased from 2010 to 2011 and from 2011 to 2012.
Deferred tax assets	The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value.	Verizon Communications Inc.'s deferred tax assets increased from 2010 to 2011 and from 2011 to 2012.
Net deferred tax assets (liability)	For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods.	Verizon Communications Inc.'s net deferred tax assets (liability) increased from 2010 to 2011 and from 2011 to 2012.