Page 74 - SWGas Annual Report 2015

At December 31, 2015, the Company has U.S. federal net capital loss carryforwards of $505,000, which begin to
expire in 2016. At December 31, 2015, the Company has an income tax net operating loss carryforward related to
Canadian operations of $3 million which begins to expire in 2032.

As of December 31, 2015, the Company sustained losses in its foreign jurisdiction and therefore has no
undistributed foreign earnings. However, the Company intends to permanently reinvest any future foreign earnings
in Canada.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (thousands of
dollars):

Unrecognized tax benefits at beginning of year 2015 2014
Gross increases-tax positions in prior period
Gross decreases-tax positions in prior period $305 $ —
Gross increases-current period tax positions — 305
Gross decreases-current period tax positions (9) —
Settlements ——
Lapse in statute of limitations ——
——
Unrecognized tax benefits at end of year ——

$296 $305

In assessing whether uncertain tax positions should be recognized in its financial statements, Southwest first
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, Southwest presumes that the
position will be examined by the appropriate taxing authority that would have full knowledge of all relevant
information. For tax positions that meet the more-likely-than-not recognition threshold, Southwest measures the
amount of benefit recognized in the financial statements at the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate settlement. Southwest recognizes unrecognized tax benefits in
the first financial reporting period in which information becomes available indicating that such benefits will more-
likely-than-not be realized. For each reporting period, management applies a consistent methodology to measure
unrecognized tax benefits, and all unrecognized tax benefits are reviewed periodically and adjusted as
circumstances warrant. Southwest’s measurement of its unrecognized tax benefits is based on management’s
assessment of all relevant information, including prior audit experience, the status of audits, conclusions of tax
audits, lapsing of applicable statutes of limitation, identification of new issues, and any administrative guidance or
developments

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $0 at
December 31, 2015. No significant increases or decreases in unrecognized tax benefit are expected within the next
12 months.

The Company recognizes interest expense and income and penalties related to income tax matters in income tax
expense. There was no tax-related interest income for 2015, 2014, and 2013.

Southwest Gas Corporation