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Income Taxes | 9 Months Ended
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Sep. 30, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company’s effective tax rate was 20.7% and 21.8% for the three months ended September 30, 2024 and 2023, respectively. The Company’s effective tax rate was 20.0% and 20.5% for the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate for the three months ended September 30, 2024 was lower than the statutory rate as a result of tax preferred items including the dividends received deduction, incentive compensation, partially offset by state income taxes, net of federal benefit. The effective tax rate for the nine months ended September 30, 2024 was lower than the statutory rate as a result of tax preferred items including incentive compensation, the dividends received deduction, foreign tax credits, net of addback, and low income housing tax credits, partially offset by state income taxes, net of federal benefit. The effective tax rate for the three months ended September 30, 2023 was higher than the statutory rate as a result of state income taxes, net of federal benefit. The effective tax rate for the nine months ended September 30, 2023 was lower than the statutory rate as a result of tax preferred items including incentive compensation, partially offset by state income taxes, net of federal benefit. The decrease in the effective tax rate for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to lower pretax income in the current period compared to the prior period and the related impact on tax preferred items, a decrease in unrecognized tax benefits, and a decrease in foreign taxes, partially offset by an increase in state income taxes, net of federal benefit. Included in the Company’s deferred income tax assets are tax benefits related to foreign net operating losses of $47 million, which do not expire, federal tax credit carryforwards of $43 million, which do not expire, and state net operating losses of $32 million, net of federal benefit, which will expire beginning December 31, 2024. The Company is required to establish a valuation allowance for any portion of its deferred tax assets that management believes will not be realized. Significant judgment is required in determining if a valuation allowance should be established and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. Consideration is given to, among other things in making this determination: (i) future taxable income exclusive of reversing temporary differences and carryforwards; (ii) future reversals of existing taxable temporary differences; (iii) taxable income in prior carryback years; and (iv) tax planning strategies. Based on analysis of the Company’s tax position as of September 30, 2024, management believes it is more likely than not that the Company will not realize certain state net operating losses of $31 million, state deferred tax assets of $2 million (both net of federal benefit), and foreign net operating losses of $35 million; therefore, a valuation allowance has been established. The valuation allowance was $68 million and $65 million as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, the Company had $152 million and $150 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $124 million and $120 million, net of federal tax benefits, of unrecognized tax benefits as of September 30, 2024 and December 31, 2023, respectively, would affect the effective tax rate. During the second quarter of 2023, the Company had additions to its gross unrecognized tax benefits for tax positions of prior years of $71 million and reductions to its gross unrecognized tax benefits of prior years of $80 million. It is reasonably possible that the total amount of unrecognized tax benefits will change in the next 12 months. The Company estimates that the total amount of gross unrecognized tax benefits may decrease by approximately $13 million in the next 12 months primarily due to expected exam closures and state statutes of limitations expirations. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net increase of $1 million and $4 million in interest and penalties for the three and nine months ended September 30, 2024, respectively. The Company recognized a net increase of $2 million and $10 million in interest and penalties for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024 and December 31, 2023, the Company had a payable of $30 million and $26 million, respectively, related to accrued interest and penalties. The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently auditing the Company’s U.S. income tax returns for 2019 and 2020. The Company’s state income tax returns are currently under examination by various jurisdictions for years ranging from 2017 through 2021. The Company is an applicable corporation required to compute corporate alternative minimum tax (“CAMT”). As of September 30, 2024 and December 31, 2023, the Company recorded an estimate of $43 million and nil, respectively, for the current provision of the CAMT. The provision was offset with a deferred tax asset for the CAMT credit carryover, which does not expire, resulting in no impact to the total tax provision. The estimate is based on interpretations and assumptions of available guidance the Company has made regarding the CAMT provisions of the Inflation Reduction Act of 2022. The U.S. Department of the Treasury issued proposed CAMT regulations in the current quarter. The proposed regulations are subject to public review and comment prior to finalizing. The Company is evaluating the potential impact of the proposed regulations. In December 2021, the Organization for Economic Co-operation and Development published the Pillar Two model rules which introduce new taxing mechanisms aimed at ensuring multinational enterprises pay a minimum level of tax on profits from each jurisdiction in which they operate. Various jurisdictions that the Company operates in have enacted or substantively enacted legislation that became effective beginning January 1, 2024. The Company intends to rely on Pillar Two transitional safe harbors where available and, based on its current estimate, has not recorded any Pillar Two tax liabilities. The Company continues to monitor the adoption and implementation of these rules and evaluate the potential impact on its consolidated financial statements.

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