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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Taxes |
Income Taxes | 9. Income Taxes Income Tax Expense Our income tax expense consisted of the following for the years ended December 31 (in millions):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018 |  | 2017
Current: |  | ​ |  |  | ​ |  |  | ​ |
Federal | ​ | $ | 204 | ​ | $ | 256 | ​ | $ | 400
State | ​ |  | 94 | ​ |  | 132 | ​ |  | 56
Foreign | ​ |  | 36 | ​ | ​ | 40 | ​ | ​ | 37
​ | ​ |  | 334 | ​ | ​ | 428 | ​ | ​ | 493
Deferred: | ​ |  |  | ​ | ​ |  | ​ | ​ |
Federal | ​ |  | 94 | ​ | ​ | 59 | ​ | ​ | (316)
State | ​ |  | 8 | ​ | ​ | (32) | ​ | ​ | 62
Foreign | ​ |  | (2) | ​ | ​ | (2) | ​ | ​ | 3
​ | ​ |  | 100 | ​ | ​ | 25 | ​ | ​ | (251)
Income tax expense | ​ | $ | 434 | ​ | $ | 453 | ​ | $ | 242
​ The U.S. federal statutory income tax rate is reconciled to the effective income tax rate for the years ended December 31 as follows:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  |  | 2018 |  | ​ | 2017 |
Income tax expense at U.S. federal statutory rate |  | 21.00 | % |  | 21.00 | % | ​ | 35.00 | %
State and local income taxes, net of federal income tax benefit |  | 4.39 |  |  | 4.41 |  | ​ | 3.25 | ​
Impacts of enactment of tax reform |  | — |  |  | (0.51) |  | ​ | (24.14) | ​
Federal tax credits |  | (4.38) |  |  | (2.44) |  | ​ | (2.31) | ​
Taxing authority audit settlements and other tax adjustments |  | (0.74) |  |  | (3.85) |  | ​ | 0.03 | ​
Tax impact of equity-based compensation transactions |  | (0.91) |  |  | (0.54) |  | ​ | (1.45) | ​
Tax impact of impairments |  | 0.72 |  |  | 0.03 |  | ​ | 0.66 | ​
Tax rate differential on foreign income |  | 0.40 |  |  | 0.43 |  | ​ | (0.55) | ​
Other |  | 0.13 |  |  | 0.51 |  | ​ | 0.55 | ​
Effective income tax rate |  | 20.61 | % |  | 19.04 | % | ​ | 11.04 | %
​ The comparability of our income tax expense for the reported periods has been primarily affected by (i) variations in our income before income taxes; (ii) federal tax credits; (iii) excess tax benefits associated with equity-based compensation transactions (iv) adjustments to our accruals and deferred taxes; (v) the tax implications of impairments; (vi) the realization of state net operating losses and credits; (vii) tax audit settlements and (viii) the impacts of enactment of tax reform. For financial reporting purposes, income before income taxes by source for the years ended December 31 was as follows (in millions):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018 |  | 2017
Domestic | ​ | $ | 2,025 | ​ | $ | 2,235 | ​ | $ | 2,040
Foreign (a) | ​ |  | 80 | ​ | ​ | 141 | ​ | ​ | 151
Income before income taxes | ​ | $ | 2,105 | ​ | $ | 2,376 | ​ | $ | 2,191
(a) | Foreign income before income taxes for the year ended December 31, 2019 includes a $52 million impairment charge related to our minority-owned investment in a waste conversion technology business. See Note 12 for further discussion.
Investments Qualifying for Federal Tax Credits — We have significant financial interests in entities established to invest in and manage low-income housing properties and a refined coal facility. On August 28, 2019 we acquired an additional noncontrolling interest in a limited liability company established to invest in and manage low-income housing properties. Our consideration for this investment totaled $160 million, which was comprised of a $140 million note payable and an initial cash payment of $20 million. We support the operations of these entities in exchange for a pro-rata share of the tax credits they generate. The low-income housing investments and the coal facility’s refinement processes qualify for federal tax credits that we expect to realize through 2030 under Section 42, through 2024 under Section 45D, and through 2019 under Section 45 of the Internal Revenue Code. We account for our investments in these entities using the equity method of accounting, recognizing our share of each entity’s pre-tax results of operations and other reductions in the value of our investments in equity in net losses of unconsolidated entities, within our Consolidated Statements of Operations. During the years ended December 31, 2019, 2018 and 2017, we recognized $46 million, $30 million and $30 million of net losses and a reduction in our income tax expense of $96 million, $57 million and $51 million, respectively, primarily due to tax credits realized from these investments. In addition, during the years ended December 31, 2019, 2018 and 2017, we recognized interest expense of $9 million, $3 million and $2 million, respectively, associated with our investments in low-income housing properties. See Note 19 for additional information related to these unconsolidated variable interest entities. Other Federal Tax Credits — During 2019, 2018 and 2017, we recognized federal tax credits in addition to the tax credits realized from our investments in low-income housing properties and the refined coal facility, resulting in a reduction in our income tax expense of $11 million, $10 million and $13 million, respectively. Equity-Based Compensation — During 2019, 2018 and 2017, we recognized excess tax benefits related to the vesting or exercise of equity-based compensation awards resulting in a reduction in our income tax expense of $25 million, $17 million and $37 million, respectively. Adjustments to Accruals and Deferred Taxes — Adjustments to our accruals and deferred taxes due to the filing of our income tax returns, analysis of our deferred tax balances and changes in state and foreign laws resulted in a reduction in our income tax expense of $22 million, $52 million and $5 million for the years ended December 31, 2019, 2018 and 2017, respectively. Tax Implications of Impairments — Portions of the impairment charges recognized during the reported periods are not deductible for tax purposes resulting in an increase in income tax expense of $15 million, $1 million and $15 million for the years ended December 31, 2019, 2018 and 2017, respectively. See Note 12 for more information related to our impairment charges. State Net Operating Losses and Credits — During 2019, 2018 and 2017, we recognized state net operating losses and credits resulting in a reduction in our income tax expense of $14 million, $22 million and $12 million, respectively. Tax Audit Settlements — We file income tax returns in the U.S. and Canada, as well as other state and local jurisdictions. We are currently under audit by various taxing authorities, as discussed below, and our audits are in various stages of completion. During the reported periods, we settled various tax audits which resulted in a reduction in our income tax expense of $2 million, $40 million and $2 million for the years ended December 31, 2019, 2018 and 2017, respectively. We participate in the IRS’s Compliance Assurance Process, which means we work with the IRS throughout the year towards resolving any material issues prior to the filing of our annual tax return. Any unresolved issues as of the tax return filing date are subject to routine examination procedures. We are currently in the examination phase of IRS audits for the 2017 through 2019 tax years and expect these audits to be completed within the next 15 months. We are also currently undergoing audits by various state and local jurisdictions for tax years that date back to 2013. Enactment of Tax Reform – In accordance with applicable accounting guidance, the Company recognized the provisional tax impacts and subsequent measurement period adjustments related to the remeasurement of our deferred income tax assets and liabilities and the one-time, mandatory transition tax on deemed repatriation of previously tax-deferred and unremitted foreign earnings, resulting in a reduction in our income tax expense of $12 million and $529 million for the years ended December 31, 2018 and 2017, respectively. Unremitted Earnings in Foreign Subsidiaries — No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time, mandatory transition tax, or any additional outside basis difference, as these amounts continue to be indefinitely reinvested in foreign operations. Deferred Tax Assets (Liabilities) The components of net deferred tax liabilities as of December 31 are as follows (in millions):
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018
Deferred tax assets: |  | ​ |  |  | ​ |
Net operating loss, capital loss and tax credit carry-forwards | ​ | $ | 150 | ​ | $ | 258
Landfill and environmental remediation liabilities | ​ |  | 156 | ​ |  | 143
Operating lease liabilities | ​ |  | 114 | ​ |  | —
Miscellaneous and other reserves, net | ​ |  | 150 | ​ |  | 175
Subtotal | ​ |  | 570 | ​ |  | 576
Valuation allowance | ​ |  | (162) | ​ |  | (261)
Deferred tax liabilities: | ​ |  |  | ​ |  |
Property and equipment | ​ |  | (842) | ​ |  | (752)
Goodwill and other intangibles | ​ |  | (865) | ​ |  | (854)
Operating lease right-of-use assets | ​ |  | (108) | ​ |  | —
Net deferred tax liabilities | ​ | $ | (1,407) | ​ | $ | (1,291)
​ The valuation allowance decreased by $99 million in 2019 primarily due to the utilization and expiration of federal capital loss carry-forwards. As of December 31, 2019, we had $1.8 billion of state net operating loss carry-forwards with expiration dates through 2039. We also had $27 million of federal capital loss carry-forwards with expiration dates through 2024, $32 million of foreign tax credit carry-forwards with expiration dates through 2029 and $17 million of state tax credit carry-forwards with expiration dates through 2035. We have established valuation allowances for uncertainties in realizing the benefit of certain tax loss and credit carry-forwards and other deferred tax assets. While we expect to realize the deferred tax assets, net of the valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation. Liabilities for Uncertain Tax Positions A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, including accrued interest, is as follows (in millions):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018 |  | 2017
Balance as of January 1 | ​ | $ | 36 | ​ | $ | 109 | ​ | $ | 82
Additions based on tax positions related to the current year | ​ |  | 5 | ​ |  | 6 | ​ |  | 19
Additions based on tax positions of prior years | ​ |  | — | ​ |  | 12 | ​ |  | 11
Accrued interest | ​ |  | 2 | ​ |  | 2 | ​ |  | 4
Settlements | ​ |  | — | ​ |  | (88) | ​ |  | (1)
Lapse of statute of limitations | ​ |  | (3) | ​ |  | (5) | ​ |  | (6)
Balance as of December 31 | ​ | $ | 40 | ​ | $ | 36 | ​ | $ | 109
​ These liabilities are included as a component of other long-term liabilities in our Consolidated Balance Sheets because the Company does not anticipate that settlement of the liabilities will require payment of cash within the next 12 months. As of December 31, 2019, we have $33 million of net unrecognized tax benefits that, if recognized in future periods, would impact our effective income tax rate. We recognize interest expense related to unrecognized tax benefits in our income tax expense, which was not material for the reported periods. We did not have any accrued liabilities or expense for penalties related to unrecognized tax benefits for the reported periods.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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