Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.22.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES
NOTE 11 - INCOME TAXES
Income (loss) from continuing operations before income taxes includes the following components:
Year Ended December 31,
(In millions) 2022 2021 2020
United States $ 1,803  $ 3,827  $ (201)
Foreign (7) (24) 8 
Total $ 1,796  $ 3,803  $ (193)
The components of the income tax provision (benefit) on continuing operations consist of the following:
Year Ended December 31,
(In millions) 2022 2021 2020
Current provision (benefit):
United States federal $ 201  $ 14  $ (2)
United States state & local 131  55  — 
Foreign 1  —  (1)
333  69  (3)
Deferred provision (benefit):
United States federal 117  683  (95)
United States state & local (22) 31  (11)
  Foreign (5) (10) (2)
Total income tax provision (benefit) from continuing operations $ 423  $ 773  $ (111)
Reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory rate is as follows:
(In millions) 2022 2021 2020
Tax at U.S. statutory rate $ 377  21  % $ 799  21  % $ (41) 21  %
Increase (decrease) due to:
Percentage depletion in excess of cost depletion (49) (3) (99) (3) (42) 22 
State taxes, net 71  4  86  2  (11) 6 
Federal & state provision to return 27  1  (2) —  —  — 
Other items, net (3) —  (11) —  (17) 8 
Provision for income tax expense (benefit) and effective income tax rate including discrete items $ 423  23  % $ 773  20  % $ (111) 57  %
The decrease in income tax expense in 2022, as compared to the prior year, is directly related to the decrease in the pre-tax book income year-over-year.
The increase in income tax expense in 2021 from income tax benefit in 2020 is directly correlated to the increase in pre-tax book income year-over-year.
The components of income taxes for other than continuing operations consisted of the following:
(In millions) 2022 2021 2020
Other comprehensive income (loss):
Pension and OPEB $ (425) $ (206) $ (52)
Derivative financial instruments 26  (21) (1)
Total $ (399) $ (227) $ (53)
Significant components of our deferred tax assets and liabilities are as follows:
(In millions) 2022 2021
Deferred tax assets:
Operating loss and other carryforwards $ 389  $ 379 
Pension and OPEB liabilities 244  584 
Environmental 96  58 
Product inventories 54  28 
State and local 14  109 
Lease liabilities 62  65 
Other liabilities 135  136 
Total deferred tax assets before valuation allowance 994  1,359 
Deferred tax asset valuation allowance (390) (409)
Net deferred tax assets 604  950 
Deferred tax liabilities:
Investment in ventures (195) (191)
Lease assets (38) (93)
Property, plant and equipment and mineral rights (827) (641)
Other assets (122) (123)
Total deferred tax liabilities (1,182) (1,048)
Net deferred tax assets (liabilities) $ (578) $ (98)
We had gross domestic (including states) and foreign NOLs of $2,278 million and $1,444 million, respectively, at December 31, 2022. We had gross domestic (including states) and foreign NOLs of $2,081 million and $1,407 million, respectively, at December 31, 2021. The U.S. federal NOLs will begin to expire in 2034 and state NOLs begin to expire in 2023. The foreign NOLs begin to expire in 2035. We had gross interest expense limitation carryforwards of $77 million and $18 million for the years ended December 31, 2022 and 2021, respectively. This interest expense can be carried forward indefinitely.
The changes in the valuation allowance are presented below:
(In millions) 2022 2021 2020
Balance at beginning of year $ 409  $ 836  $ 441 
Change in valuation allowance:
Included in income tax benefit (19) (82) (3)
Increase (decrease) from acquisitions —  (345) 398 
Balance at end of year $ 390  $ 409  $ 836 
At December 31, 2022 and 2021, we have a valuation allowance recorded of $342 million and $339 million, respectively, related to foreign deferred tax assets, and an additional $48 million and $70 million, respectively, against certain state NOLs, which are expected to expire before utilization.
During 2021, we recorded a decrease to the valuation allowance of $345 million related to the election filed with our 2020 federal tax return to waive the pre-acquisition NOLs that are limited under Section 382 of the IRC. An offsetting decrease was recorded in the NOL deferred tax asset in the same period. These amounts related to a portion of the $398 million valuation allowance recorded during 2020 through opening balance sheet adjustments to reflect the portion of federal and state NOLs that are limited under Section 382 of the IRC acquired through the AK Steel Merger.
At December 31, 2022 and 2021, we had no cumulative undistributed earnings of foreign subsidiaries included in retained earnings. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(In millions) 2022 2021 2020
Unrecognized tax benefits balance as of January 1 $ 35  $ 107  $ 29 
Increases for tax positions in current year 24  4  7 
Decrease due to tax positions in prior year (1) (66) (4)
Lapses in statutes of limitations —  (10) — 
Increases from acquisitions —  —  75 
Unrecognized tax benefits balance as of December 31 $ 58  $ 35  $ 107 
The following table presents the classification of unrecognized tax benefits on the Statements of Consolidated Financial Position:
December 31,
Balance Sheet Location (In millions) 2022 2021
Other current liabilities —  $ 1 
Other non-current liabilities 58  34 
If the unrecognized tax benefits were recognized, the full $58 million would impact the effective tax rate. Interest and penalties related to unrecognized tax benefits are $3 million for the year ended December 31, 2022. We do not expect that the amount of unrecognized benefits will change significantly within the next 12 months.
Tax years 2016 and forward remain subject to examination for the U.S., and tax years 2018 and forward remain subject to examination for Canada.