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INCOME TAXES | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Earnings (losses) before income taxes by geographical area consisted of the following (in millions of dollars):
| For the Years Ended December 31,
| 2021 |  | 2020 |  | 2019
U.S. | $ | 1,267 |  |  | $ | 1,015 |  |  | $ | 1,226 |
Foreign | 218 |  |  | (68) |  |  | (17) |
Total | $ | 1,485 |  |  | $ | 947 |  |  | $ | 1,209 |
Income tax expense consisted of the following (in millions of dollars):
| For the Years Ended December 31,
| 2021 |  | 2020 |  | 2019
Current income tax expense: |  |  |  |  |
U.S. Federal | $ | 221 |  |  | $ | 119 |  |  | $ | 199 |
U.S. State | 46 |  |  | 28 |  |  | 44 |
Foreign | 81 |  |  | 65 |  |  | 58 |
Total current | 348 |  |  | 212 |  |  | 301 |
Deferred income tax expense (benefit) | 23 |  |  | (20) |  |  | 13 |
Total income tax expense | $ | 371 |  |  | $ | 192 |  |  | $ | 314 |
The income tax effects of temporary differences that gave rise to the net deferred tax asset (liability) as of December 31, 2021 and 2020 were as follows (in millions of dollars):
| As of December 31,
| 2021 |  | 2020
Deferred tax assets: |  |  |
Inventory | $ | — |  |  | $ | 14 |
Accrued expenses | 152 |  |  | 93 |
Foreign loss carryforwards | 59 |  |  | 45 |
Accrued employment-related benefits | 50 |  |  | 37 |
Tax credit carryforward | 27 |  |  | 25 |
Other | 17 |  |  | 8 |
Deferred tax assets | 305 |  |  | 222 |
Less valuation allowance | (70) |  |  | (53) |
Deferred tax assets – net of valuation allowance | $ | 235 |  |  | $ | 169 |
Deferred tax liabilities: |  |  |
Property, buildings, equipment and other capital assets | (217) |  |  | (145) |
Intangibles | (67) |  |  | (68) |
Inventory | (9) |  |  | — |
Other | (8) |  |  | (10) |
Deferred tax liabilities | (301) |  |  | (223) |
Net deferred tax liability | $ | (66) |  |  | $ | (54) |
The net deferred tax asset (liability) is classified as follows: |  |  |
Noncurrent assets | $ | 14 |  |  | $ | 14 |
Noncurrent liabilities (foreign) | (80) |  |  | (68) |
Net deferred tax liability | $ | (66) |  |  | $ | (54) |
At December 31, 2021 the Company had $238 million of gross loss carryforwards related to foreign operations. Some of the loss carryforwards may expire at various dates through 2041. The Company has recorded a valuation allowance, which represents a provision for uncertainty as to the realization of the tax benefits of these carryforwards and deferred tax assets that may not be realized. The Company's valuation allowance changed as follows (in millions of dollars):
| For the Years Ended December 31,
| 2021 |  | 2020
Balance at beginning of period | $ | (53) |  |  | $ | (72) |
Increases primarily related to foreign NOLs | (8) |  |  | (16) |
Releases primarily related to foreign NOLs | 2 |  |  | — |
Foreign subsidiaries tax impacts due to divestiture | 2 |  |  | 39 |
Tax rate changes | (7) |  |  | (1) |
Increase related to U.S. foreign tax credits | (3) |  |  | (2) |
Other changes – net | (3) |  |  | (1) |
Balance at end of period | $ | (70) |  |  | $ | (53) |
A reconciliation of income tax expense with federal income taxes at the statutory rate follows (in millions of dollars):
| For the Years Ended December 31,
| 2021 |  | 2020 |  | 2019
Federal income tax | $ | 312 |  |  | $ | 199 |  |  | $ | 254 |
State income taxes – net of federal income tax benefit | 41 |  |  | 33 |  |  | 36 |
Foreign rate difference | 26 |  |  | 23 |  |  | 25 |
Foreign subsidiaries tax impacts due to divestiture | — |  |  | (61) |  |  | — |
Change in valuation allowance | 7 |  |  | 16 |  |  | 11 |
Other – net | (15) |  |  | (18) |  |  | (12) |
Income tax expense | $ | 371 |  |  | $ | 192 |  |  | $ | 314 |
Effective tax rate | 25.0 | % |  | 20.3 | % |  | 26.0 | %
The changes to the Company's effective tax rate for the year ended December 31, 2021 and 2020 was primarily driven by the absence of tax losses in the Company's investment in Fabory due to the impairment and internal reorganization of the Company's holdings of Fabory in the first quarter of 2020. The Company divested Fabory during the second quarter of 2020. Foreign Undistributed Earnings Estimated gross undistributed earnings of foreign subsidiaries at December 31, 2021, amounted to $544 million. The Company considers these undistributed earnings permanently reinvested in its foreign operations and is not recording a deferred tax liability for any foreign withholding taxes on such amounts. If at some future date the Company ceases to be permanently reinvested in its foreign subsidiaries, the Company may be subject to foreign withholding and other taxes on these undistributed earnings and may need to record a deferred tax liability for any outside basis difference in its investments in its foreign subsidiaries. Tax Uncertainties The Company recognizes in the financial statements a provision for tax uncertainties, resulting from application of complex tax regulations in multiple tax jurisdictions. The changes in the liability for tax uncertainties, excluding interest, are as follows (in millions of dollars):
| For the Years Ended December 31,
| 2021 |  | 2020 |  | 2019
Balance at beginning of year | $ | 39 |  |  | $ | 28 |  |  | $ | 37 |
Additions for tax positions related to the current year | 3 |  |  | 23 |  |  | 3 |
Additions for tax positions of prior years | — |  |  | — |  |  | 1 |
Reductions for tax positions of prior years | (1) |  |  | (2) |  |  | (1) |
Reductions due to statute lapse | (3) |  |  | (10) |  |  | (10) |
Settlements, audit payments, refunds – net | — |  |  | — |  |  | (2) |
Balance at end of year | $ | 38 |  |  | $ | 39 |  |  | $ | 28 |
The Company classifies the liability for tax uncertainties in deferred income taxes and tax uncertainties. Included in this amount is $4 million at December 31, 2021 and 2020, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Any changes in the timing of deductibility of these items would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authorities to an earlier period. Excluding the timing items, the remaining amounts would affect the annual tax rate. In 2021, the changes to tax positions were primarily related to the impact of expiring statutes and current year state and local reserves. In 2020, the changes to tax positions were related generally to the tax losses on the Company’s investment in Fabory along with the impact of expiring statutes, the conclusion of audits and audit settlements. Estimated interest and penalties were not material. The Company regularly undergoes an examination of its federal income tax returns by the Internal Revenue Service. The statute of limitations expired for the Company's 2017 federal tax return while tax years 2018 through 2020 are open. The Company is also subject to audit by state, local and foreign taxing authorities. Tax years 2012-2020 remain subject to state and local audits and 2016-2020 remain subject to foreign audits. The amount of liability associated with the Company's tax uncertainties may change within the next 12 months due to the pending audit activity, expiring statutes or tax payments. A reasonable estimate of such change cannot be made.

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