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Income Taxes | 3 Months Ended
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Mar. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes In August 2022, the U.S. Government enacted legislation commonly referred to as the Inflation Reduction Act that became effective January 1, 2023. The main provisions of the Inflation Reduction Act that impact us are: (i) a 15% corporate alternative minimum tax (“Corporate AMT”) and (ii) a 1% excise tax on share repurchases, which we will record in equity on our consolidated statements of stockholders’ equity (deficit). We are considered an “applicable corporation” for purposes of Corporate AMT. We expect our regular federal income tax liability will generally exceed our Corporate AMT liability; however, certain unique circumstances may result in our Corporate AMT liability exceeding our regular federal income tax liability, including when tax losses are reported in a different year than book losses. Earnings before income taxes, provision for income taxes and income tax rates consisted of the following:
|  | For the Three Months Ended March 31, |  |
(in millions) |  | 2023 |  | 2022 |  |  |  |
Earnings before income taxes |  | $ | 2,479 |  | $ | 2,673 |  |  |  |
Provision for income taxes |  | 692 |  | 714 |  |  |  |
Income tax rate |  | 27.9 | % |  | 26.7 | % |  |  |  |
Our income tax rate for the three months ended March 31, 2023 differs from the U.S. federal statutory rate of 21%, due primarily to state tax expense and a valuation allowance recorded against a deferred tax asset related to the disposition of our former investment in JUUL. Our income tax rate for the three months ended March 31, 2022 differs from the U.S. federal statutory rate of 21%, due primarily to state tax expense and a valuation allowance recorded against a deferred tax asset related to a decrease in the estimated fair value of our investment in JUUL. We are subject to income taxation in many jurisdictions. Unrecognized tax benefits reflect the differences between tax positions we have taken or expect to take on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax positions with the relevant tax authorities may take many years to complete, and such timing is not entirely within our control. For the year ending December 31, 2023, we expect to recognize an approximate $6.5 billion ordinary loss for cash tax purposes with respect to a portion of our tax basis associated with our former investment in JUUL. For financial statement purposes, we expect to fully reserve for the tax benefit associated with this ordinary loss by recording an unrecognized tax benefit of approximately $1.6 billion in 2023 on a pro-rata basis, pending the IRS’s review of our tax position. For the three months ended March 31, 2023, we recognized a pro-rata portion of this ordinary loss, which resulted in a tax benefit of $380 million and a reduction to our current income taxes payable. We also recognized a $391 million increase in a long-term liability for unrecognized tax benefits related to this tax position, partially offset by an $11 million deferred federal benefit for state taxes. There was no impact to our condensed consolidated statement of earnings for the three months ended March 31, 2023. For further discussion of our former investment in JUUL, see Note 3. Investments in Equity Securities. At March 31, 2023, our total unrecognized tax benefits were $460 million. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at March 31, 2023, was $44 million, along with $416 million affecting deferred taxes. The amount of unrecognized tax benefit that, if recognized, would impact the effective tax rate at December 31, 2022, was $44 million, along with $25 million affecting deferred taxes. Unrecognized tax benefits increased by $391 million from December 31, 2022 due to the tax position established with respect to the character of losses from our former investment in JUUL as discussed above. As a result of the recognition of the approximate $6.5 billion ordinary loss for cash tax purposes discussed above, we expect to be subject to Corporate AMT in 2023. The following chart provides a reconciliation of the beginning and ending valuation allowances for the three months ended March 31, 2023:
(in millions) |  |
Balance at beginning of year |  | $ | 2,800 |
Additions to valuation allowance charged to income tax expense |  | 72 |
Releases to valuation allowance credited to income tax benefit |  | (4) |
Foreign currency translation |  | (1) |
Reductions to valuation allowance offset to deferred tax asset (no impact to earnings) |  | (663) |
Balance at end of period |  | $ | 2,204 |
We determine deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance when it is more likely than not that some portion or all of a deferred tax asset will not be realized. We determine the realizability of deferred tax assets based on the weight of all available positive and negative evidence. In reaching this determination, we consider the character of the assets and the possible sources of taxable income of the appropriate character within the available carryback and carryforward periods available under the tax law. For the three months ended March 31, 2023, we reduced the deferred tax asset and corresponding valuation allowance for the portion of our JUUL capital losses that is now part of our tax basis in the shares of a foreign subsidiary. This outside basis difference of the foreign subsidiary is not recognized as a deferred tax asset since we do not expect the temporary difference to reverse in the foreseeable future. The cumulative valuation allowance at March 31, 2023 was primarily attributable to deferred tax assets recorded in connection with the portion of our JUUL capital losses that is now included in our tax basis in the shares of a domestic subsidiary and our investment in Cronos.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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