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INCOME TAXES | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | NOTE 22: INCOME TAXES Income Tax Provision The provisions for current and deferred income taxes are summarized as follows:
| Fiscal Years Ended |  | Two Quarters Ended |  | Fiscal Year Ended
(In millions) | December 31, 2021 |  | January 1, 2021 |  | January 3, 2020 |  | June 28, 2019
Current: |  |  |  |  |  |  |
United States | $ | 415 |  |  | $ | 337 |  |  | $ | 11 |  |  | $ | 105 |
International | 70 |  |  | 76 |  |  | 37 |  |  | 9 |
State and local | 65 |  |  | 45 |  |  | 16 |  |  | 8 |
| 550 |  |  | 458 |  |  | 64 |  |  | 122 |
Deferred: |  |  |  |  |  |  |
United States | (55) |  |  | (150) |  |  | 33 |  |  | 15 |
International | (34) |  |  | (73) |  |  | (15) |  |  | (3) |
State and local | (21) |  |  | (1) |  |  | (9) |  |  | 26 |
| (110) |  |  | (224) |  |  | 9 |  |  | 38 |
| $ | 440 |  |  | $ | 234 |  |  | $ | 73 |  |  | $ | 160 |
The total income tax provision is summarized as follows:
| Fiscal Years Ended |  | Two Quarters Ended |  | Fiscal Year Ended
(In millions) | December 31, 2021 |  | January 1, 2021 |  | January 3, 2020 |  | June 28, 2019
Continuing operations | $ | 440 |  |  | $ | 234 |  |  | $ | 73 |  |  | $ | 160 |
Discontinued operations | — |  |  | — |  |  | — |  |  | (1) |
Total income tax provision | $ | 440 |  |  | $ | 234 |  |  | $ | 73 |  |  | $ | 159 |
A reconciliation of the U.S. statutory income tax rate to our effective income tax rate follows:
| Fiscal Years Ended |  | Two Quarters Ended |  | Fiscal Year Ended
| December 31, 2021 |  | January 1, 2021 |  | January 3, 2020 |  | June 28, 2019
U.S. statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State taxes | 1.8 |  |  | 3.2 |  |  | 1.4 |  |  | 2.4 |
International income | 0.4 |  |  | 0.4 |  |  | 0.9 |  |  | (0.5) |
Non-deductible goodwill impairment | 0.6 |  |  | 5.8 |  |  | — |  |  | — |
Research and development tax credit | (5.9) |  |  | (9.2) |  |  | (4.7) |  |  | (4.5) |
Foreign derived intangibles income deduction | (1.4) |  |  | (1.3) |  |  | (0.8) |  |  | (1.3) |
Change in valuation allowance | 0.9 |  |  | 0.5 |  |  | (4.8) |  |  | (1.8) |
Impact of divestitures | 4.1 |  |  | — |  |  | — |  |  | — |
Equity-based compensation(1) | (1.1) |  |  | (1.0) |  |  | (5.4) |  |  | (2.1) |
Settlement of tax audits | (1.1) |  |  | (1.8) |  |  | — |  |  | — |
Other items | — |  |  | 0.1 |  |  | 0.4 |  |  | 1.2 |
Effective income tax rate | 19.3 | % |  | 17.7 | % |  | 8.0 | % |  | 14.4 | %
_______________ (1)Includes non-deductible equity-based compensation and excess tax benefits from equity-based compensation. As of December 31, 2021, we estimate our outside basis difference in foreign subsidiaries that are considered indefinitely reinvested to be approximately $1 billion. The outside basis difference is comprised predominantly of purchase accounting adjustments and to a lesser extent, undistributed earnings and other equity adjustments. In the event of a disposition of the foreign subsidiaries or a distribution, we may be subject to incremental U.S. income taxes, subject to an adjustment for foreign tax credits, and withholding taxes or income taxes payable to the foreign jurisdictions. As of December 31, 2021, the determination of the amount of unrecognized deferred tax liability related to the outside basis difference is not practicable. Tax Law Changes The implementation of a modified territorial tax system under the Tax Act subjects us to tax on our Global Intangible Low-Taxed Income (“GILTI”) starting with fiscal 2019. The Financial Accounting Standards Board has permitted companies to make an accounting policy decision to either (1) treat taxes due on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred (“period cost method”) or (2) factor such amounts into the measurement of its deferred taxes (“deferred method”). We have elected to use the period cost method. Deferred Income Tax Assets (Liabilities) The components of deferred income tax assets (liabilities) were as follows:
(In millions) | December 31, 2021 |  | January 1, 2021 |  |
Deferred tax assets: |  |  |  |  |
Accruals | $ | 288 |  |  | $ | 315 |  |  |
Tax loss and credit carryforwards | 174 |  |  | 155 |  |  |
Pension and other post-employment benefits | 107 |  |  | 457 |  |  |
Operating lease obligation | 245 |  |  | 202 |  |  |
Other | 329 |  |  | 313 |  |  |
Valuation allowance(1) | (257) |  |  | (165) |  |  |
Deferred tax assets, net | 886 |  |  | 1,277 |  |  |
Deferred tax liabilities: |  |  |  |  |
Property, plant and equipment | (103) |  |  | (91) |  |  |
Acquired intangibles | (1,663) |  |  | (1,934) |  |  |
Operating lease right-of-use asset | (218) |  |  | (182) |  |  |
Other | (161) |  |  | (188) |  |  |
Deferred tax liabilities | (2,145) |  |  | (2,395) |  |  |
Net deferred tax assets (liabilities) | $ | (1,259) |  |  | $ | (1,118) |  |  |
_______________ (1)The valuation allowance has been established to offset certain domestic and foreign deferred tax assets due to uncertainty regarding our ability to realize them in the future. The net increase in our valuation allowance in fiscal 2021 was $92 million. Net deferred tax assets (liabilities) were classified as follows in our Consolidated Balance Sheet:
(In millions) | December 31, 2021 |  | January 1, 2021 |  |
Non-current deferred income tax assets | $ | 85 |  |  | $ | 119 |  |  |
Non-current deferred income tax liabilities | (1,344) |  |  | (1,237) |  |  |
| $ | (1,259) |  |  | $ | (1,118) |  |  |
Tax loss and credit carryforwards at December 31, 2021 have expiration dates ranging from less than one year to no expiration date. A significant portion of the carryforwards are either indefinite or begin expiring between 2034 to 2035. The tax-effected amounts of federal, international and state and local operating loss carryforwards at December 31, 2021 were $6 million, $52 million and $17 million, respectively. The tax-effected amounts of federal, international and state and local capital loss carryforwards were not material at December 31, 2021. The amounts of federal, international and state and local credit carryforwards at December 31, 2021 were $4 million, $11 million and $95 million, respectively. Income from continuing operations before income taxes of international subsidiaries was $29 million in fiscal 2021, loss from continuing operations before income taxes of international subsidiaries was $101 million in fiscal 2020 and income from continuing operations before income taxes of international subsidiaries was $96 million and $37 million in the two quarters ended January 3, 2020 and in fiscal 2019, respectively. We paid $358 million in income taxes, net of refunds received, in fiscal 2021; paid $394 million in income taxes, net of refunds received, in fiscal 2020; received $8 million in income tax refunds, net of income taxes paid, in the two quarters ended January 3, 2020; and paid $137 million in income taxes, net of refunds received, in fiscal 2019. Tax Uncertainties A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| Fiscal Years Ended |  | Two Quarters Ended |  | Fiscal Year Ended
(In millions) | December 31, 2021 |  | January 1, 2021 |  | January 3, 2020 |  | June 28, 2019
Balance at beginning of period | $ | 542 |  |  | $ | 438 |  |  | $ | 204 |  |  | $ | 102 |
Additions based on tax positions taken during current period | 115 |  |  | 60 |  |  | 35 |  |  | 31 |
Additions based on tax positions taken during prior periods | 11 |  |  | 21 |  |  | — |  |  | 80 |
Additions for tax positions related to acquired entities | — |  |  | 116 |  |  | 226 |  |  | — |
Decreases based on tax positions taken during prior periods | (64) |  |  | (82) |  |  | (7) |  |  | (9) |
Decreases from lapse in statutes of limitations | (15) |  |  | (3) |  |  | (20) |  |  | — |
Decreases from settlements | (2) |  |  | (8) |  |  | — |  |  | — |
Balance at end of period | $ | 587 |  |  | $ | 542 |  |  | $ | 438 |  |  | $ | 204 |
As of December 31, 2021, we had $587 million of unrecognized tax benefits, of which $488 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. As of January 1, 2021, we had $542 million of unrecognized tax benefits, of which $453 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. We recognize accrued interest and penalties related to unrecognized tax benefits as part of our income tax expense. We recognized interest and penalties of $3 million, $14 million and $2 million in fiscal 2021, fiscal 2020 and the two quarters ended January 3, 2020, respectively, and none in fiscal 2019. We had accrued $47 million for the potential payment of interest and penalties as of December 31, 2021 (and this amount was not included in the $587 million of unrecognized tax benefits balance at December 31, 2021 shown above). We had accrued $47 million for the potential payment of interest and penalties as of January 1, 2021 (and this amount was not included in the $542 million of unrecognized tax benefits balance at January 1, 2021 shown above). We file numerous separate and consolidated income tax returns reporting our financial results and, where appropriate, those of our subsidiaries and affiliates, in the U.S. Federal jurisdiction and various state, local and foreign jurisdictions. Pursuant to the Compliance Assurance Process, the IRS is examining the Harris federal tax returns for fiscal 2017, 2018, 2019 and 2020 and refund claims related to fiscal 2010 through 2016. In addition, legacy L3’s federal tax returns for calendar years 2017 and 2018 are currently under IRS examination and refund claims related to calendar years 2012, 2013, 2015 and 2016 have been filed with the IRS. We are currently under examination or contesting proposed adjustments by various state and international tax authorities for fiscal years ranging from 2012 through 2020. It is reasonably possible that there could be a significant decrease or increase to our unrecognized tax benefit balance during the course of the next twelve months as these examinations continue, other tax examinations commence or various statutes of limitations expire. An estimate of the range of possible changes cannot be made for remaining unrecognized tax benefits because of the significant number of jurisdictions in which we do business and the number of open tax 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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://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 http://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 http://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 http://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 http://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 http://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 http://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 http://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 http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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